EMU Integration and Member States’ Constitutions 9781509935789, 9781509935819, 9781509935796

Table of contents :
Preface
Contents
List of Contributors
1. Analytical Report on the Legal Background of Member States' Positions towards Economic and Fiscal Integration
I. Introductory Remarks
II. The EU Law Perspective
III. Constitutional Foundations of EU and EMU Membership
IV. Constitutional Obstacles to Further EMU Integration
V. Lessons to be Learnt from the Times of Crisis
VI. Concluding Remarks
References
2. EMU Integration against the Backdrop of EU Law and Jurisprudence
I. Introduction
II. The EMU in the Course of Time
III. Reform Initiatives
IV. Conclusion
References
3. Bulgaria EMU Integration and the Bulgarian Constitution: ‘Missing Constitution’ or EU Friendliness and Open Statehood Masquerading Implicit Sovereigntist Strategies in the Context of Multilevel Constitutional Games?
I. Main Characteristics of the National Constitutional System and Constitutional Culture
II. Constitutional Foundations of EMU Membershipand Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and Practice on ImplementingEMU Related Law
V. Resulting Relationship between EMU Related Law and National Law
References
4. EMU Integration and the Czech Constitution Doctrinal Openness and Political Reluctance
I. Main Characteristics of the National Constitutional System, and Constitutional Culture
II. Constitutional Foundations of EMU Membershipand Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and Practice on Implementing EMU Related Law
V. Resulting Relationship between EMU Related Law and National Law
References
5. Denmark
I. Main Characteristics of the National Constitutional System and Constitutional Culture
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practice on Implementing EMU Related Law
V. Resulting Relationship between EMU Related Law and National Law
References
6. Germany
I. Main Characteristics of the National Constitutional System and Constitutional Culture
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practice on Implementing EMU Related Law
V. Resulting Relationship between EMU-related Law and National Law
References
7. Estonia
I. Main Characteristics of the National Constitutional System
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and Practice on Implementing EMU Related Law
V. Resulting Relationship between EMU Related Law and National Law
References
8. Ireland
I. Main Characteristics of National Constitutional System, and Constitutional Culture
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practice on Implementing EMU Related Law
V. Resulting Relationship between EMU-Related Law and National Law
References
9. Greece Further EMU Steps Require a Democratic Eurozone Architecture
I. Main Characteristics of the National Constitutional System, and Constitutional Culture
II. Constitutional Foundations of EMU Membershipand Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practiceon Implementing EMU Related Law
V. Resulting Relationship betweenEMU-Related Law and National Law
References
10. Spain The Impact of the EMU on the Spanish Constitution Following the Euro Crisis: A Stress Test for the Europeanisation of the Constitutional Order
I. Main Characteristics of the NationalConstitutional System, and Constitutional Culture
II. Constitutional Foundations of EMU Membershipand Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practiceon Implementing EMU Related Law
V. Resulting Relationship between EMU RelatedLaw and National Law
References
11. France The Paradox of Constitutional Adaptability in a Member State Running Budget Excessive Deficits
I. Main Characteristics of the French Constitutional System and Constitutional Culture
II. Constitutional Foundations of EMU Membershipand Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practice onImplementing EMU Related Law
V. Resulting Relationship between EMURelated Law and National Law
References
12. Croatia
I. Introduction
II. Main Characteristics of the National Constitutional System and Constitutional Culture
III. Constitutional Foundations of EMU Membership
IV. Constitutional Obstacles to EMU Integration
V. Constitutional Rules and/or the Practice of Implementing EU Law and EMU Related Instruments, Including the Role of Parliamentary Bodies
VI. Resulting Relationship between EMU Related Law and National Law
References
13. Italy
I. Main Characteristics of the Italian Constitutional System and Constitutional Culture
II. Constitutional Foundations of Italian EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practice on Implementing EMU Related Law
V. Resulting Relationship between EMU Related Law and National Law
References
14. Cyprus
I. Main Characteristics of the National Constitutional System and Constitutional Culture
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU-Integration
IV. Constitutional Rules and/or Practice on Implementing EMU Related Law
V. Resulting Relationship between EMU Related Law and National Law
References
15. Latvia
I. Main Characteristics of the National Constitutional System and Constitutional Culture
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules or Practice on Implementing EMU Related Law
V. Resulting Relationship between EMU Related Law and National Law
References
16. Lithuania
I. Main Characteristics and Constitutional Culture of Lithuania"s Constitutional System
II. The Constitutional Foundations of EU and EMU Membership and its Limits
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practice on Implementing EMU Related Law
V. Resulting Relationship between EU Related Law and National Law
References
17. Luxembourg
I. Main Characteristics of Luxembourg's Constitutional System and Culture
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practice on Implementing EMU Related Law
V. Resulting Relationship between EMU Related Law and National Law
References
18. Hungary
I. Main Characteristics of the National Constitutional System
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practice on Implementing EMU Related Law
V. Resulting Relationship between EU Law and National Law
References
19. Malta The Assimilation of the EU’s Economic, Fiscal and Monetary Governance Acquis in the Maltese Legal Framework
I. Main Characteristics and Constitutional Culture
II. Constitutional Foundations of EMU Membershipand Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practiceon Implementing EMU Related Law
V. Resulting Relationship between EMU Related lawand National Law – Conclusion
References
20. The Netherlands
I. Main Characteristics of the National Constitutional System and Constitutional Culture
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practice on Implementing EMU Related Law
V. Resulting Relationship between EMU Related Law and National Law
References
21. Austria
I. Main Characteristics of the National Constitutional System, and Constitutional Culture
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practice on Implementing EMU Related Law
V. Resulting Relationship between EMU Related Law and National Law
References
22. Poland
I. The Main Characteristics of the National Constitutional System and Constitutional Culture
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practice on Implementing EMU Related Law
V. Resulting Relationship between EMU Related Law and National Law
References
23. Portugal
I. Main Characteristics of the National Constitutional System, and Constitutional Culture
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Related Measures
IV. Constitutional Rules and/or Practice of Implementing EU Law and EMU Related Instruments
V. Resulting Relationship between EMU Related Law and National Law
References
24. Romania
I. Main Characteristics of the National Constitutional System
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and Practice on Implementing EMU-Related Law
V. Resulting Relationship between EMU-Related Law and National Law
References
25. Slovakia (Seemingly) No Legal Obstacles to Deepening EMU Integration
I. General Introductory Remarks
II. Main Characteristics of the Slovak ConstitutionalSystem and Constitutional Culture
III. Constitutional Foundations of EMU Membershipand Closely Related Instruments
IV. Constitutional Obstacles to EMU Integration
V. General Constitutional Rules and Practiceof Implementing EMU Secondary Legislation
VI. Conclusion: Resulting Relationship betweenEMU Related Law and National Law
References
26. Slovenia
I. Main Characteristics of the National Constitutional System
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practice on Implementing EMU Related Law
V. Resulting Relationship between EU Law and National Law
References
27. Finland
I. Main Characteristics of the Finnish Constitutional System
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration, Including Crisis Management Measures and EMU Reform Scenarios
IV. Constitutional Rules and/or Practice on Implementing EMU Related Law
V. Resulting Relationship between EMU Related Law and National Law – Concluding Remarks
References
28. Sweden
I. Main Characteristics of the National Constitutional System (Including the Judiciary)
II. Constitutional Foundations of EMU Membership and Closely Related Instruments
III. Constitutional Obstacles to EMU Integration
IV. Constitutional Rules and/or Practice on Implementing EMU Relating Law
V. Resulting Relationship between EU Law and National Law
References
29. United Kingdom
I. Introduction
II. The United Kingdom and Monetary Union: The Initial Decision
III. The UK Opt-Out
IV. The Opt-Out and UK Policy
V. Conclusion
Index

Citation preview

EMU INTEGRATION AND MEMBER STATES’ CONSTITUTIONS In this book, legal scholars from the EU Member States (with the addition of the UK) analyse the development of the EU Member States’ attitudes to economic, fiscal, and monetary integration since the Treaty of Maastricht. The Eurozone crisis corroborated the warnings of economists that weak economic policy coordination and loose fiscal oversight would be insufficient to stabilise the monetary union. The chapters in this book investigate the legal, and in particular the constitutional, pre-conditions for deeper fiscal and monetary integration that influenced the past and might impact on the future positions in the (now) 27 EU Member States. The individual country studies address the following issues: • Main characteristics of the national constitutional system, and constitutional culture; • Constitutional foundations of Economic and Monetary Union (EMU) membership and related instruments; • Constitutional obstacles to EMU integration; • Constitutional rules and/or practice on implementing EMU-related law; • Resulting relationship between EMU-related law and national law. Offering a comprehensive and detailed assessment of the legal and constitutional developments concerning the Economic and Monetary Union since the Treaty of Maastricht, this book provides not only a study of legal EMU-related measures and reforms at the EU level, but most importantly sheds light on their perception in the EU Member States.

ii

EMU Integration and Member States’ Constitutions Edited by

Stefan Griller and

Elisabeth Lentsch

HART PUBLISHING Bloomsbury Publishing Plc Kemp House, Chawley Park, Cumnor Hill, Oxford, OX2 9PH, UK 1385 Broadway, New York, NY 10018, USA 29 Earlsfort Terrace, Dublin 2, Ireland HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published in Great Britain 2021 Copyright © The editors and contributors severally 2021 The editors and contributors have asserted their right under the Copyright, Designs and Patents Act 1988 to be identified as Authors of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www. nationalarchives.gov.uk/doc/open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2021. A catalogue record for this book is available from the British Library. A catalogue record for this book is available from the Library of Congress. ISBN: HB: ePDF: ePub:

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PREFACE This volume is a product of the EMU_Choices project, part of the European Union’s Horizon research and innovation programme.1 While this was primarily a political science project run by Sonja Puntscher Riekmann and Fabio Wasserfallen, exploring EU Member States’ ­preferences for economic and fiscal integration, it also included some fruitful transdisciplinary cooperation between political scientists and lawyers. Given that EU and also Member States’ preferences are emerging against the backdrop, or as lawyers prefer to frame it, based on the legal foundations of the EU and its members, informed talk about ‘EMU choices’ necessitates the ­inclusion of legal, political, and economic perspectives. While the latter were not the explicit focus of the project but rather its constant background and challenge, the political and legal aspects were expressly dealt with, interwoven as they are. In this sense, the present volume, which brings together many previously published papers, is the legal sibling of triplets comprising two other books.2 While the truly interdisciplinary pieces emerging from the project proved the exception,3 transdisciplinary debate prospered and informed the research design and the results even where this is not explicitly indicated. This is so for most of the contributions to this volume. While they are concentrating on the EU and Member States’ constitutional framework of EMU and EMU reform, they do this with a view to the political dimension of the topic and to the economic ­challenges, not least those resulting from the economic and sovereign debt crisis, sometimes dubbed the euro crisis, unfolding from 2008 onwards. The core of this book is the reports on the national constitutional foundations of EMU membership,4 summarised and evaluated by an Analytical Report. Drafts of the country reports had been presented and intensely debated among all participants including colleagues from political science during four workshops: 2015 in Salzburg, 2016 in Aix-en-Provence, 2017 in Lisbon, and 2018 in Örebro. These discussions and exchange resulted in the final versions submitted and made ready for publication. The country reports are complemented by the ‘EU perspective’, namely the report on the EU legal framework for the EMU including the developments during and after the crisis, and on the institutional impact of these developments as well as on future perspectives. In doing so, the contributions to this volume develop further, in the specific policy field of EMU, what 1 Under grant agreement No 649532. See also https://emuchoices.eu/ (last visited January 2020). 2 Leonardo Morlino and Cecilia Sottilotta, The Politics of the Eurozone Crisis in Southern Europe (London, Palgrave Macmillan, 2019); Sonja Puntscher Riekmann, Fabio Wasserfallen and Zdenek Kudrna (eds), The Politics of Eurozone Reforms (London, ECPR Press, 2020). 3 However, compare Zdenek Kudrna and Elisabeth Lentsch, ‘Constitutional amendment Index: the procedural requirements of an EMU-induced constitutional change in EU member states’ (2019) 3 ZöR 443–64; Sabine Saurugger and Clement Fontan, ‘Courts as political actors: Resistance to the EU’s new economic governance mechanisms at the domestic level’, 2017, https://halshs.archives-ouvertes.fr/halshs-01628964/document (last visited January 2020). 4 The specific position of the United Kingdom at the time of writing – given the decision to leave the EU – is considered in Paul Craig’s contribution. Unfortunately, however, we could not manage to get the report on Belgium.

vi  Preface another project investigated in a more general approach on ‘National Constitutions and EU Integration’.5 In short, the legal division of the EMU choices team investigated the legal, in particular the constitutional, pre-conditions for deeper fiscal and monetary integration that influenced the past and might impact on the future positions in all (now) 27 EU Member States. The Member States’ reports follow, with some slight modifications, a common structure that had been the basis at the beginning of the project and has been developed further as we moved along. This common structure makes it easier to compare the legal restraints across countries and to draw conclusions, respectively. Each country report is presented in the following format: I. Main characteristics of the national constitutional system (including the judiciary) and constitutional culture. II. Constitutional foundations of EMU membership and closely related instruments: A. Constitutional basis for economic and fiscal integration; B. Role of the jurisprudence of supreme and/or constitutional courts. III. Constitutional obstacles to EMU related measures A. Crisis management measures; B. Constitutional amendments and their effects on the relationship between national and European constitutional law; C. Nature and scope of the national legal and political instruments for the integration and implementation of EMU-related measures: i. EU instruments; ii. ‘European integration outside the EU legal order’; D. Constitutional law scrutiny of EMU reform scenarios. IV. Constitutional rules and/or practice on implementing EMU related law, including the role of parliamentary bodies. V. Resulting relationship between EMU law and national law. We are very grateful to the European Commission for funding EMU_Choices. Without such funding, the project would never have started. We would also like to express our gratitude to our Horizon 2020 reviewers, specifically Fabian Amtenbrink, and our peer, Bruno de Witte, for ­valuable critique and guidance that improved our results. Furthermore, we are indebted to Sonja Puntscher-Riekmann and Fabio Wasserfallen for taking us, the lawyers, on board a primarily policy-oriented project, and not only accepting but deeply engaging in the resulting cross-disciplinary debates, that informed our thinking and results more than might be visible at first sight. While we feel inspired and enriched by the political science perspective that determined the thematic focus and the project design, we consider that the participation of lawyers in the project stimulated the debate on ‘law as a dependent variable’ or ‘independent variable’ also among political scientists. This goes to the core of the debate, to what extent legal restraints guide and determine the political discourse or are to be seen as – more or less easily modifiable – elements of preference formation in a political process. This cross-disciplinary and methodologically fundamental dimension of the project could certainly not be ‘solved’ and will continue to spark fruitful debates between lawyers and political scientists.



5 This

being the title of the book edited by Stefan Griller, Lina Papapdopoulou and Roman Puff (Oxford, Hart, 2020).

Preface  vii All authors of the country reports have put enormous effort into the completion of their c­ ontributions. We are very grateful for this, and not only for the professional excellence we ­benefited from but also for the resilience and perseverance that were necessary to bring the project to a good end. Finally, our special thanks go to Doris Wydra and Roman Puff from the Salzburg Centre of European Union Studies (SCEUS). Without their invaluable support the project would not have started and could not have finished properly. Stefan Griller, Elisabeth Lentsch Salzburg, April 2020

viii

CONTENTS Preface���������������������������������������������������������������������������������������������������������������������������������������������������� v List of Contributors������������������������������������������������������������������������������������������������������������������������������ xi 1. Analytical Report on the Legal Background of Member States’ Positions towards Economic and Fiscal Integration������������������������������������������������������������������������������������� 1 Stefan Griller 2. EMU Integration against the Backdrop of EU Law and Jurisprudence������������������������������������� 33 Elisabeth Lentsch 3. Bulgaria: EMU Integration and the Bulgarian Constitution: ‘Missing Constitution’ or EU Friendliness and Open Statehood Masquerading Implicit Sovereigntist Strategies in the Context of Multilevel Constitutional Games?�������������������������������������������������� 75 Martin Belov 4. EMU Integration and the Czech Constitution: Doctrinal Openness and Political Reluctance��������������������������������������������������������������������������������������������������������������� 97 Tomáš Dumbrovský 5. Denmark������������������������������������������������������������������������������������������������������������������������������������ 125 Ulla Neergaard 6. Germany������������������������������������������������������������������������������������������������������������������������������������� 145 Stefan Korioth, Jonas Marx 7. Estonia���������������������������������������������������������������������������������������������������������������������������������������� 177 Andres Tupits 8. Ireland���������������������������������������������������������������������������������������������������������������������������������������� 195 Gavin Barrett 9. Greece: Further EMU Steps Require a Democratic Eurozone Architecture����������������������������� 225 Lina Papadopoulou 10. Spain: The Impact of the EMU on the Spanish Constitution Following the Euro Crisis: A Stress Test for the Europeanisation of the Constitutional Order���������������� 255 Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez 11. France: The Paradox of Constitutional Adaptability in a Member State Running Budget Excessive Deficits������������������������������������������������������������� 283 Laetitia Guilloud-Colliat, Fabien Terpan 12. Croatia���������������������������������������������������������������������������������������������������������������������������������������� 305 Tamara Ćapeta, Iris Goldner Lang

x  Contents 13. Italy��������������������������������������������������������������������������������������������������������������������������������������������� 331 Monica Bonini and Stefania Ninatti 14. Cyprus���������������������������������������������������������������������������������������������������������������������������������������� 361 Nikos Skoutaris 15. Latvia������������������������������������������������������������������������������������������������������������������������������������������ 379 Dita Plepa 16. Lithuania������������������������������������������������������������������������������������������������������������������������������������ 399 Irmantas Jarukaitis 17. Luxembourg������������������������������������������������������������������������������������������������������������������������������� 419 Jörg Gerkrath 18. Hungary�������������������������������������������������������������������������������������������������������������������������������������� 433 Attila Vincze, Pál Sonnevend and András Jakab 19. Malta: The Assimilation of the EU’s Economic, Fiscal and Monetary Governance Acquis in the Maltese Legal Framework�������������������������������������������������������������� 461 Joseph Bugeja 20. The Netherlands������������������������������������������������������������������������������������������������������������������������� 489 Jan-Herman Reestman, Monica Claes 21. Austria���������������������������������������������������������������������������������������������������������������������������������������� 523 Rainer Palmstorfer 22. Poland����������������������������������������������������������������������������������������������������������������������������������������� 539 Dariusz Adamski 23. Portugal�������������������������������������������������������������������������������������������������������������������������������������� 555 Ana Maria Guerra Martins, Joana de Sousa Loureiro 24. Romania������������������������������������������������������������������������������������������������������������������������������������� 583 Dr Mihaela Vrabie 25. Slovakia: (Seemingly) No Legal Obstacles to Deepening EMU Integration������������������������������������������������������������������������������������������������������������������������ 607 Robert Zbíral 26. Slovenia�������������������������������������������������������������������������������������������������������������������������������������� 631 Matej Avbelj, Erazem Bohinc 27. Finland��������������������������������������������������������������������������������������������������������������������������������������� 649 Tuomas Ojanen 28. Sweden���������������������������������������������������������������������������������������������������������������������������������������� 671 Joakim Nergelius, Eleonor Kristoffersson 29. United Kingdom������������������������������������������������������������������������������������������������������������������������� 685 Paul Craig Index�������������������������������������������������������������������������������������������������������������������������������������������������� 699

LIST OF CONTRIBUTORS Dariusz Adamski is Professor of Law and Head of Centre for European Economic Law and Governance at the University of Wrocław, Poland. Matej Avbelj is a Professor of European Law at the Graduate School of Government and European Studies at Kranj, Slovenia. Gavin Barrett is Professor of Law and Head of Teaching and Learning at the Sutherland School of Law, University College Dublin, Ireland. Martin Belov is Associate Professor in Constitutional and Comparative Constitutional Law at the St Kliment Ochridski University of Sofia, Bulgaria. Erazem Bohinc is a Law Clerk at the Higher Court in Ljubljana, Slovenia. Monica Bonini is Associate Professor at the Department of Business and Law of Bicocca University, Milan, Italy. Joseph Bugeja is Senior Associate at Gauci-Maistre Xynou in La Valetta, Malta. Tamara Ćapeta is Professor at the Department of European Public Law at the Faculty of Law of the University of Zagreb, Croatia. Monica Claes is Professor of European and Comparative Constitutional Law at the Law Faculty of Maastricht University, the Netherlands. Paul Craig is Professor of English Law and Fellow of St John’s College at the University of Oxford, United Kingdom. Joana de Sousa Loureiro is Auditor of Justice at the Centre for Judicial Studies in Lisbon, Portugal. Tomáš Dumbrovský is Associate Professor at the Centre for Comparative Law, Faculty of Law, Charles University Prague, Czech Republic. Diane Fromage is Assistant Professor of European Law at the University of Maastricht, the Netherlands. Jörg Gerkrath is Professor for European, International Law and Public Law at the University of Luxembourg. Iris Goldner Lang is Professor at the Department of European Public Law at the Faculty of Law of the University of Zagreb, Croatia. Maribel González Pascual is Advisor at the Secretary of State for Territorial Policy of the Spanish Government, Madrid, Spain. Stefan Griller is Professor for European Law and Director of the Salzburg Centre for EU Law – SCEUS at the University of Salzburg, Austria.

xii  List of Contributors Ana Maria Guerra Martins is the Portuguese Judge at the European Court of Human Rights, Strasbourg, France. Laetitia Guilloud-Colliat is Professor for Public Law at the Université Grenoble-Alpes, Grenoble, France. András Jakab is Professor of Constitutional and Administrative Law at the Law Faculty of the University of Salzburg, Austria. Irmantas Jarukaitis is the Lithuanian Judge at the Court of Justice of the EU in Luxembourg. Stefan Korioth is Professor for Public Law, Canon Law and German Constitutional and Administrative Law at the Ludwig Maximilians University Munich, Germany. Eleonor Kristoffersson is Professor in Tax Law at Örebro University, Sweden. Elisabeth Lentsch was Post-doc researcher in the Horizon 2020 Project ‘The choice for Europe since Maastricht’ from 2015–19. Jonas Marx is Research Assistant at the Chair for Public Law, Canon Law and German Constitutional and Administrative Law of the Ludwig Maximilians University Munich, Germany. Ulla Neergaard is Professor of EU Law at the University of Copenhagen, Denmark. Joakim Nergelius is Professor for Constitutional Law at Örebro University, Sweden. Stefania Ninatti is Professor of Constitutional Law at the Law Department of Bicocca University, Milan, Italy. Tuomas Ojanen is Professor of Constitutional Law at the University of Helsinki, Finland. Rainer Palmstorfer is Associate Professor for European and Constitutional Law at the University of Salzburg, Austria. Lina Papadopoulou is Associate Professor of Constitutional Law at the Law Faculty of the Aristotle University, Salonica, Greece. Dita Plepa is Lecturer in Constitutional Law at Rīga Stradiņš University, Riga, Latvia. Jan-Herman Reestman is Professor for European and Comparative Constitutional Law at the University of Amsterdam, the Netherlands. Nikos Skoutaris is Associate Professor in EU Law at the University of East Anglia School of Law, Norwich, United Kingdom. Joan Solanes Mullor is Lecturer of Constitutional Law at the Pompeu Fabra University, Barcelona, Spain. Pál Sonnevend is a Professor of International Law at the Eötvös Lórant University ELTE in Budapest, Hungary. Fabien Terpan is Associate Professor of Public Law and European Studies at Science Po Grenoble, France. Aida Torres Pérez is Professor of Constitutional Law and Deputy Director of the Law Department of the Pompeu Fabra University, Barcelona, Spain.

List of Contributors  xiii Andres Tupits is Visiting Professor at the Estonian Business School, Tallinn, Estonia. Attila Vincze is Professor at the Chair for European Public Law and its Foundations at Andrássy University Budapest, Hungary. Mihaela Vrabie is Associated Lecturer in EU Law at the University of Bucharest and Senior Associate at Popovici Nițu Stoica & Asociații LLC in Bucharest, Romania. Robert Zbíral is Professor for Constitutional Law at the Masaryk University in Brno, Czech Republic.

xiv

1 Analytical Report on the Legal Background of Member States’ Positions towards Economic and Fiscal Integration STEFAN GRILLER

I.  Introductory Remarks The legal background of the EU Member States’ positions towards economic and fiscal integration is at least twofold. On the one hand, at stake is the EU legal order and the Member States’ constitutions, complementing each other. On the other hand, the intricate relationship between national and EU law, including eventual conflicts, is also at stake. This is one of the core issues of current and future European constitutional development, in general.1 Two cornerstones form the essential elements of the respective European landscape. On the one hand, the jurisprudence of the CJEU and the developments brought about by the Lisbon Treaty; on the other hand, the national foundations of EU membership which are, from the point of view of national constitutional law, the legal basis for the interaction between national and European law. Bringing Economic and Monetary Union (EMU) integration into the picture creates an additional layer of complexity. There is a growing body of literature on the constitutional dimensions

1 From the flood of literature on the subject, compare only (all with further references) Anneli Albi and Samo Bardutzky (eds), National Constitutions in European and Global Governance: Democracy, Rights, the Rule of Law (The Hague, TMC Asser Press, 2019); Monica Claes, Maartje de Visser, Patricia Popelier and Catherine Van de Heyning (eds), Constitutional Conversations in Europe (Cambridge/Antwerp/Portland, Intersentia, 2012); European Parliament, Policy Department C: Citizens’ Rights and Constitutional Affairs (ed), National Constitutional Law and European Integration, Study PE 432.750 (Brussels, 2011) 11–31, 196–226; European Parliament, Policy Department C: Citizens’ Rights and Constitutional Affairs (ed), National Constitutional Avenues for further EU Integration, Study PE 493.046 (Brussels, 2014); Christoph Grabenwarter, ‘National Constitutional Law Relating to the European Union’ in A von Bogdandy and J Bast (eds), Principles of European Constitutional Law, 2nd edn (Oxford/Munich, Hart Publishing/CH Beck, 2010) 83; Stefan Griller, Franz Maislinger and Andreas Reindl, Fundamentale Rechtsgrundlagen einer EG-Mitgliedschaft, Verfassungsfragen der Übernahme von EG-Recht in den bisherigen Mitgliedstaaten in vergleichender Sicht (Wien, Verlag Österreich, 1991); Alfred Kellermann, Jaap de Zwaan and Jeno Czuczai (eds), EU Enlargement – The Constitutional Impact at EU and National Level (The Hague, TMC Asser Press, 2001); Franz Mayer and Mattias Wendel, ‘Die verfassungsrechtlichen Grundlagen des Europarechts’ in A Hatje and C Müller-Graff (eds), Europäisches Organisations- und Verfassungsrecht, Enzyklopädie Europarecht I (Baden-Baden, Nomos, 2014) 163 (§ 4); Anne-Marie Slaughter, Alex Stone Sweet and Joseph HHWeiler (eds), The European Courts and National Courts – Doctrine and Jurisprudence. Legal Change in Its Social Context (Oxford, Hart, 1998).

2  Stefan Griller of EMU integration and specifically EMU reform. However, that literature focuses more on the EU perspective and less on that of the Member States.2 This book aims to contribute to closing this gap. It comprises studies on the institutional consequences of fiscal and economic integration measures, including the EMU reform scenarios,3 taking an EU constitutional law perspective. The core of this volume consists of 27 reports addressing pertinent integration puzzles in the Member States (the United Kingdom included) from the angle of national constitutional law. This report tries to pull all of these studies together and present their findings, specifically of the Member States’ reports. This is done by briefly touching upon the EU constitutional law perspective on the subject (II.) followed by summarising and evaluating the findings of the country reports oriented by the common structure that has been the basis of the project. The respective sections are therefore on the constitutional foundations of EU and EMU membership (III.), on constitutional obstacles to further EMU integration (IV.), and on the lessons to be learnt from the times of crisis (V.), followed by concluding remarks (VI.).

II.  The EU Law Perspective A.  Primacy of EU Law – Recent Developments i.  The Treaty of Lisbon The longstanding jurisprudence of the CJEU concerning primacy of Community law is of continued relevance for EU law after the entry into force of the Lisbon Treaty. The CJEU had stated back in the early 1960s that the Community constituted ‘a new legal order of international law’.4 Shortly afterwards, the Court changed its rhetoric by omitting the adjective ‘international’, and called the Treaty on the European Economic Community an independent source of law.5 The Court early on specified the consequences of this concept for the relationship between Community law and the national law of the Member States, arriving at the unconditional supremacy of Community law vis-à-vis national law: Recourse to the legal rules or concepts of national law in order to judge the validity of measures adopted by the institutions of the Community would have an adverse effect on the uniformity and efficacy of Community law. The validity of such measures can only be judged in the light of Community law. In fact, the law stemming from the Treaty, an independent source of law, cannot because of its very nature be overridden by rules of national law, however framed, without being deprived of its character as Community law and without the legal basis of the community itself being called in question. Therefore the validity of a community measure or its effect within a Member state cannot be affected by allegations that it runs counter to either fundamental rights as formulated by the constitution of that state or the principles of a national constitutional structure.6

2 An exception is Fabian Amtenbrink, ‘General report’ in U Neergard, C Jacqueson and JH Danielsen (eds), The Economic and Monetary Union: Constitutional and Institutional Aspects of the Economic Governance within the EU, XXVI FIDE Congress in Copenhagen (Copenhagen, Djøf Publishing, 2014) 73, based on 17 country reports (including Switzerland). 3 Elisabeth Lentsch, ‘EMU Integration against the backdrop of EU law and jurisprudence’ (in this volume). 4 Case 26/62, van Gend and Loos, 1963 ECR, 1 at 12. 5 Case 6/64, Costa v ENEL, 1964 ECR, 585 at 593f. However, the CJEU never explained in which respect the treaty could be ‘independent’ from international law apart from forming a special international community. 6 Case 11/70, Internationale Handelsgesellschaft, ECLI:EU:C:1970:114, para 3.

The Legal Background of Member States’ Positions  3 Clearly, this jurisprudence goes to the heart of any national reservation against the unconditional prevalence of Community law. The Lisbon Treaty did not bring about major changes with respect to the primacy of EU law. However, it did bring more nuances to the principle of primacy compared to the jurisprudence of the CJEU. The Draft Constitutional Treaty featured a so-called ‘primacy clause’.7 The Constitutional Treaty would have been the first EU Treaty to include an explicit clause governing the hierarchical position of the law adopted by the EU institutions, thereby coining the respective jurisprudence of the CJEU: ‘The Constitution and law adopted by the institutions of the Union in exercising competences conferred on it shall have primacy over the law of the Member states.’8 The Lisbon Treaty, by contrast, suppresses this clause. What is included instead is a Declaration (No 17) to the Treaties ‘concerning primacy’. It recalls that, in accordance with well settled case law of the Court of Justice of the European Union, the Treaties and the law adopted by the Union on the basis of the Treaties have primacy over the law of Member states, under the conditions laid down by the said case law.

The Intergovernmental Conference also decided to attach as an Annex to the Final Act an Opinion of the Council Legal Service. In its core part, this opinion reads as follows: ‘The fact that the principle of primacy will not be included in the future treaty shall not in any way change the existence of the principle and the existing case-law of the Court of Justice’. The place the principle of primacy was given in the Lisbon Treaty documents led neither to overturning it, nor to extending it.9 The effect of an extension could, however, be considered given that Declaration No 17 is – like the standing jurisprudence of the CJEU – unconditional and does not mention the competences of the Union as a limiting element. Nevertheless, restricting EU powers to its conferred competences by explicit Treaty provisions was clearly stated elsewhere in the Lisbon Treaty.10 Furthermore, the Lisbon Treaty reconfirms not only the limits of the Union’s competences, but also the respect for the national constitutional structures. It is this aspect which differs substantially from the cited jurisprudence of the CJEU. The Treaty stipulates explicitly that the Union ‘shall respect the equality of Member states before the Treaties as well as their national identities, inherent in their fundamental structures, political and constitutional, inclusive of regional and local self-government. It shall respect their essential state functions …’.11 Furthermore, regarding fundamental rights protection the Charter of Fundamental Rights of the European Union (‘the Charter’) expressly states that the level of protection is that recognised not only by Union law, international law and international agreements, but also ‘by the Member states’ constitutions’.12 This could even encourage Member States’

7 For a more detailed discussion compare Stefan Griller, ‘Is this a Constitution? Remarks on a Contested Concept’ in S Griller, J Ziller (eds), The Lisbon Treaty. EU Constitutionalism without a Constitutional Treaty? (Vienna/New York, Springer, 2008) 21, 47ff. 8 Art I-6 of the Constitutional Treaty. See also Declaration no 1 to the Constitutional Treaty: ‘The conference notes that Article I-6 reflects existing case-law of the Court of Justice of the European Communities and of the Court of First Instance’. 9 In the same vein Jacques Ziller, Il nuovo Trattato europeo (Bologna, Il Mulino, 2007), 139ff. The issue – probably for this reason – does not get much attention. 10 Arts 4(1)(2) and 5(1)(2) TEU as amended by the Lisbon Treaty. 11 Art 4(2) TEU as amended by the Lisbon Treaty. 12 Art 53 of the Charter.

4  Stefan Griller reservations against the notion of unconditional supremacy of Union law over national law, and at first sight is not strengthening the respective CJEU’s jurisprudence.13 Accordingly, in contrast to the clear and unconditional tendency of the CJEU’s pre-Lisbon jurisprudence, the nuanced wording of the Lisbon Treaty points towards a growing importance of the national constitutional foundations of EU membership, accepting their significance under EU law. These national provisions are the mentioned second cornerstone, and they would have to be qualified as such even without the cited reference in the TEU. It cannot be denied that, without exception, all Member States joined the EU on the basis of their national constitutions, either on the grounds of general provisions allowing for entering into international obligations, or on the grounds of specific provisions enacted in order to prepare the national legal order for EU membership.14 Inevitably, national authorities including national courts have to respect possible limits which are included in these national constitutional foundations of EU membership. Whenever further transfer of powers to the EU or possible conflicts between EU law and national law are at stake, national authorities have to take seriously the conditions their constitution sets out for their activities.

ii.  Nuances of Recent CJEU Jurisprudence Taking a closer look at the recent jurisprudence of the CJEU might reveal that these perspectives are being taken into consideration, also by the CJEU. However, and unsurprisingly so, they are based on the EU constitutional order and not primarily on the Member States’ constitutional law. The EU constitutional order is not, when it comes to primacy, totally rigid in nature. It has to take into account that primacy has to be balanced against other principles of EU law. Some of these principles are expressly stated in Article 2 TEU. Furthermore, as a counterpart to the ‘opening clauses’ in national constitutional law, the mentioned ‘respect clause’ in Article 4(2) TEU safeguards the national identities of the Member States.15 On the one hand, there is jurisprudence emphasising the continuity of unconditional primacy. In Melloni,16 the CJEU rejected the contention that EU fundamental rights protection – and consequently, primacy of EU law – could be subject to reservations that a higher national standard of protection could prevail. It found, inter alia by referring to Internationale Handelsgesellschaft, that such an interpretation would undermine the principle of the primacy of EU law inasmuch as it would allow a Member State to disapply EU legal rules which are fully in compliance with the Charter where they infringe the fundamental rights guaranteed by that State’s constitution.17

13 This is not the place to dwell in detail on the conceptual foundations of the EU after Lisbon. However, it might still be possible to characterise the Union by a statement dating back to before the major reforms of the last decade, if ‘EC law’ is replaced by ‘EU law’: Bruno De Witte, ‘Direct Effect, Supremacy and the Nature of the Legal Order’ in P Craig, G de Búrca (eds), The Evolution of EU Law (Oxford, Oxford University Press, 1999) 177, 210: ‘The principles of direct effect and supremacy, as presently formulated and accepted, continue to confirm the nature of EC law as that of a branch of international law, albeit a branch with some unusual, quasi-federal, blossoms.’ 14 Compare the survey in Grabenwarter, ‘National Constitutional Law Relating to the European Union’, 84ff, 95ff; Koen Lenaerts and Piet van Nuffel, Constitutional Law of the European Union, 3rd edn (London, Sweet & Maxwell, 2011); Mayer, Wendel, ‘Die verfassungsrechtlichen Grundlagen des Europarechts’, paras 13ff. For more details on the view of this author Stefan Griller, ‘Fragmentierungen im Öffentlichen Recht: Diskursvergleich im internationalen und nationalen Recht’ (2018) 77 VVDStRL 237, 239ff, 255ff. 15 This clause was created by the Treaty of Maastricht (Art F(1) TEU), possibly in an effort to counterbalance the more ‘centralist’ tendencies in that treaty, which created not only the 2nd and the 3rd pillar, but also Union citizenship. 16 Case C-399/11, Melloni, ECLI:EU:C:2013:107, paras 55ff. 17 Ibid, para 58.

The Legal Background of Member States’ Positions  5 The Court stressed that all secondary EU legislation can be reviewed against the standards of EU law. However, it rejected the possibility of casting ‘doubt on the uniformity of the standard of protection of fundamental rights’ as defined in Union law, for this ‘would undermine the principles of mutual trust and recognition’.18 In Åkerberg Fransson, the CJEU confirmed a broad reading of its exclusive power to interpret the applicability limitation of the Charter related to the implementation of EU law.19 In essence, it found based on previous jurisprudence that the Charter is applicable in all situations coming under the scope of EU law. In that case the situation related to tax penalties and criminal proceedings concerning value added tax (VAT) based on the VAT Directive, and the treaty obligation to counter illegal activities affecting the financial interests of the EU. On the other hand, there are judgments balancing these obligations against others with the potential of creating tension or conflict between the two types of obligations. In Sayn-Wittgenstein,20 the CJEU accepted the protection of national identity under Article 4(2) TEU21 as a justification for the restriction on the freedom of movement and residence for Union citizens that resulted from a prohibition for Austrian citizens to use titles of nobility or noble elements in their name, like ‘Fürst’ or ‘von’. It found that Article 21 TFEU must be interpreted as not precluding such a restriction in a situation where the surname includes a title of nobility which is not permitted under the constitutional law of a Member State, provided that the measures adopted are proportionate (which the Court found fulfilled). In this context, the Court emphasised that the respective content of public policy ‘may vary from one Member State to another and from one era to another’.22 In Taricco I23 and Taricco II,24 the CJEU reconfirmed the duty flowing from Article 325(1) and (2) TFEU for national courts, in criminal proceedings for VAT infringements, to disapply national provisions on limitation, forming part of national substantive law, under two circumstances: if their application would prevent the application of effective and deterrent criminal penalties in a significant number of cases of serious fraud affecting the financial interests of the European Union, or if they lay down shorter limitation periods for cases of serious fraud affecting those interests than for those affecting the financial interests of the Member State concerned …25

However, the CJEU agreed that there are important exceptions to that duty: if that disapplication would entail a breach of the principle that offences and penalties must be defined by law because of the lack of precision of the applicable law, or if the retroactive application of legislation imposing conditions of criminal liability would be stricter than those in force at the time the infringement was committed.26

18 Ibid, paras 63ff. 19 Art 51 (1) EU charter. See C-617/10, Åkerberg Fransson, ECLI:EU:C:2013:105, paras 16ff. 20 Case C-208/09, Sayn-Wittgenstein, ECLI:EU:C:2010:806. 21 For a deeper discussion especially on the attitude of several supreme national courts discovering ‘national identity’, compare Monica Claes, ‘Negotiating Constitutional Identity or Whose Identity Is It Anyway?’ in M Claes, M de Visser, P Popelier, C Van de Heyning (eds), Constitutional Conversations in Europe (Cambridge/ Antwerp/Portland, Intersentia, 2012) 205, 213 ff; several contributions in A Saiz Arnaiz and C Alcoberro Llivina (eds), National Constitutional Identity and European Integration (Cambridge/ Antwerp/Portland, Intersentia, 2013). 22 Case C-208/09, Sayn-Wittgenstein, ECLI:EU:C:2010:806, para 87; compare also para 91. 23 Case C-105/14, Taricco I, ECLI:EU:C:2015:555. 24 Case C-42/17, MAS (Taricco II), ECLI:EU:C:2017:936. 25 Ibid, paras 29ff and verdict. 26 Ibid, para 62.

6  Stefan Griller The CJEU stressed that the respective national legislation had only been partially harmonised by the EU. Consequently Italy was, at the time, free to secure legal protection, under the condition that the level of protection provided for by the Charter ‘and the primacy, unity and effectiveness of EU law are not thereby compromised’.27 The Court accepted the importance both in the EU legal order and in national legal systems, of the principle that offences and penalties must be defined by law, which includes the requirements of foreseeability, precision and non-retroactivity.28 The important, and at least to a certain extent novel, conclusion was: If the national court were thus to come to the view that the obligation to disapply the provisions of the Criminal Code at issue conflicts with the principle that offences and penalties must be defined by law, it would not be obliged to comply with that obligation, even if compliance with the obligation allowed a national situation incompatible with EU law to be remedied … It will then be for the national legislature to take the necessary measures …29

More generally, the duty to respect primacy of EU law may be subordinate to the duty to respect the (EU and national law) principle that offences and penalties must be defined by law, as specified by the (particular) national constitution.30 Even if we cannot qualify these rulings as numerous and unequivocal in every respect, they provide for a nuanced view on primacy. The CJEU seems to accept that general principles of law that are guaranteed in EU constitutional law might imply exceptions to the primacy of EU law, even primary law that would otherwise require to disapply national law. The Court also seems to accept that these opposing general principles might create such effect through their specific expression within national constitutional law. Nothing of that kind happened in the field of EMU integration. However, there is no fundamental argument in sight that would exclude such a development.

B.  Provisional Conclusions Against this background the country reports in this volume reveal a considerable and possibly growing body of common national conditions and restrictions to European integration, which were caused by deepened scrutiny by Member States’ courts. The most important of these conditions and restrictions are spelt out below. They primarily extend to EMU integration, since they were formed in its context. The convergence of these conditions and restrictions becomes clear on a rather high level of abstraction. Going into their details reveals, also in this field, the unity in the rich diversity within the EU. The relevance of these restrictions is twofold. First, they put limits to further integration by entering into fresh treaty obligations, either on the basis of EU law or outside of the EU framework. In this regard, these restrictions, at least to a certain extent, inform any reform debate. In particular, it makes a big difference if envisaged reforms can at the national level be adopted by simple majority or by qualified majority, which is normally needed for constitutional amendments, or if they are considered to be touching upon an inalienable core of the national Constitution.

27 Ibid, para 47. 28 Ibid, para 51ff. 29 Ibid, para 61 (emphasis added). 30 Closer scrutiny, also of important issues that are omitted here, in Clara Rauchegger, ‘National constitutional rights and the primacy of EU law: M.A.S.’ (2018) 55 CML Rev, 1521, 1529ff.

The Legal Background of Member States’ Positions  7 At least in principle, however, such reform debates do not come under the ex ante scrutiny of the courts,31 even if their possible future verdicts are considered in these debates. Second, national constitutional restrictions are considered obstacles to further integration by secondary EU law. Such measures come at the same time under the scrutiny of the CJEU and of national (constitutional) courts. The above deliberations on the development of EU law in this regard might lead to the conclusion that it is difficult, but not impossible to justify national reservations against unconditional primacy of EU law – against secondary legislation – if only on the grounds of balancing this EU constitutional principle against other constitutional principles common to the Member States that are part of the general principles of EU law.32 Secondary legislation adopted on the basis of non-EU treaties, like the Treaty on Stability, Coordination and Governance (TSCG) and the European Stability Mechanism (ESM), does not come under the core competencies of the CJEU. Such measures fall primarily under the scrutiny of the Member States’ courts. As discussed further below, regarding crisis management measures, the national courts have been more active with respect to non-EU law instruments than with respect to secondary EU legislation. Nevertheless, the result of that activity might also be relevant regarding future EMU reforms.

III.  Constitutional Foundations of EU and EMU Membership33 A.  Explicit or Implicit Authorisations for Accession At first glance, there appears to be a decisive difference between Member States which enacted, either in preparation for or on the occasion of EU accession, or at a later stage, specific constitutional provisions authorising EU membership, and others which did not do so (partly because they could not find sufficient parliamentary support for specific provisions), and consequently dealt with EU accession on the grounds of general provisions on international obligations.34 The difference at first sight is that countries with specific constitutional authorisations, mostly at the time of accession – such as Austria, Bulgaria, Croatia, France, Germany, Hungary, Slovakia, Sweden and Portugal – can point to explicit constitutional wording specifying not only the requirements for the transfer of powers, but also possible limits. In countries without specific constitutional provisions (at least) at the time of accession – such as the Czech Republic, Denmark, Finland, Italy, Luxembourg, the Netherlands, Slovenia, Spain and Poland – such limits are often not mentioned, and one could even speculate on their very existence. Regarding EMU membership, the core issue has been the independence of the national central bank. In countries where this is a constitutionally regulated issue, entering into the third stage of the EMU required constitutional amendments. This was the case in Cyprus, Czech Republic, 31 This is different in those countries where, as in Germany, the Constitution provides for ex-ante scrutiny of treaty obligations, similar to Art 218(11) TFEU. 32 Compare Art 2 and Art 6(3) TEU; Takis Tridimas, The General Principles of EU Law, 2nd edn (Oxford, Oxford European Union Law Library, 2006) 5ff. 33 The aim of this chapter is to give a bird’s-eye view on the situation in the 28 EU Member States. For more details and references please consult the country reports in this volume. 34 Compare Stefan Griller, Executive Summary, in European Parliament, Policy Department C: Citizens’ Rights and Constitutional Affairs (ed), National Constitutional Law and European Integration, Study PE 432.750 (Brussels, 2011) 11 (21ff).

8  Stefan Griller Estonia, France, Finland, Hungary, Sweden, Portugal and Poland. Apart from this, specific constitutional amendments aiming at authorising participation in the EMU, or in the third stage of EMU respectively, were not adopted, with the exception of Ireland.35 Ireland, again, is a special case where the ratification also of the TSCG required both a referendum and an amendment of the Constitution.36 At second glance, however, the divide between the above-mentioned groups is less decisive. The reason is that explicit constitutional provisions may be blurry and also informed by their systematic constitutional context, which makes the conditions for EU accession and EU membership, including EMU membership, a matter of thorough interpretation of the entire Constitution. Even explicit ‘EU provisions’ might not explicitly mention concrete constitutional limits to EU membership or to the further transfer of powers (as in Austria), or they might refer to such limits only indirectly through specific authorisations of treaty amendments (as in France), thereby pointing to underlying constitutional concepts like sovereignty. Consequently, the content of the constitutional authorisation and its possible limits can only be explained by systematic interpretation of the entire Constitution, and not only by pointing to the concrete provisions authorising EU membership. This is also crucial for the restrictions which flow from national Constitutions with regard to European integration, and the EMU specifically. Countries without specific authorisations may have to observe similar or even stricter requirements, which can be inferred from the systematic interpretation of the constitutional norms governing international obligations in general (as in Finland). It may occur that the lack of specific provisions is due to the dissent on the interpretation of existing constitutional limits and the desirability of changing them, like, arguably, in the Czech Republic, and in Poland. In other countries, such as Italy, the flexibility of existing constitutional provisions on international obligations was welcomed at the beginning, and only later supplemented by constitutional amendments. As a result, core values of the national Constitutions establishing limits to European integration can be shown in all countries irrespective of the existence or lack of specific constitutional provisions governing EU membership. Those limits can only be specified by thorough interpretation of the entire national Constitution. It goes without saying that, nevertheless, explicit provisions have at least the comparatively bigger potential to clarify issues which otherwise remain controversial.

B.  General versus Specific Constitutional Authorisation Another classification differentiates, independently of the timing of creation, between ‘dynamic’ and ‘static’ constitutional foundations of EU membership.37 Dynamic constitutional provisions allow entering the EU and developing it further without the necessity to repeatedly change the Constitution for every Treaty amendment. These provisions, 35 This is because each and every Treaty change almost inevitably requires an amendment to the Irish Constitution, see below after n 37, and Gavin Barret, ‘Ireland’ (in this volume); on the introduction of the ‘golden budget rule’ into Irish law compare below near n 87. The perspective might also be different for Greece, where 2001 and ‘interpretative clause’ was added not only to Art 28 of the Constitution, but also to Art 80, to accommodate the participation of Greece in the EMU; compare Lina Papadopoulou, ‘Greece’ (in this volume). 36 By contrast, the ESM which had provoked the Pringle case originating in Ireland was ratified and incorporated into the Irish legal order by ordinary statute. 37 Mayer, Wendel, ‘Die verfassungsrechtlichen Grundlagen des Europarechts’, §§ 17ff.

The Legal Background of Member States’ Positions  9 however, may require specific majorities equalling or coming near to constitutional change for entering the EU. Arguably, and inevitably subject to detailed discussion for every country, such a situation today applies in most of the EU Member States: Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Greece, Germany, Italy, Latvia, Lithuania, Luxembourg, the Netherlands, Portugal, Romania, Slovakia, Spain and Sweden. Static constitutional authorisations would regularly – almost inevitably – require introducing amendments to the national Constitution when EU Treaty amendments are at stake. Ireland today is that specific case as an EU member. There are also ‘borderline cases’ between the two camps, where certain Treaty amendments would come under the existing authorisation, while others, even if not entirely novel, would not be covered. Arguably, this is so in France. Categorisation as ‘dynamic’ or ‘static’ is not a dispensation from interpreting the constitutional foundations with a view to possible limits to further integration or constitutional scrutiny of secondary legislation. Some constitutional texts are explicit in this respect – as in Germany and in Sweden – others, arguably the majority of the texts, are silent. However, this is by no means carte blanche for the national legislator or the government to authorise further transfers of power. By contrast, systematic and sometimes historic interpretation reveals limitations that would flow from other provisions of the Constitution or from the position of the authorisation for integration in the context of the entire Constitution. Even where explicit constitutional wording, academic debate or relevant case law is lacking, limitations might stem more from the constitutional culture in the respective country than from an in-depth analysis of the text of the Constitution.

IV.  Constitutional Obstacles to Further EMU Integration A.  Limits to the (Further) Transfer of Powers Through Treaty Amendments The following core values and competences can be identified as relevant for any future transfer of powers to the EU, generally, but also specifically for EMU integration. However, it must be stressed that the identification of common elements in the various countries is to be handled with caution: identical words might convey diverging meaning in the context of the respective Constitution and in the reading of national authorities including courts.38 ‘Relevance’ means that the respective transfer of powers would trigger constitutional consequences such as amendments requiring qualified majorities in parliament. It does not mean that the national Constitution in question requires enforcing its specificities at EU level. Nowhere do we find an obligation flowing from a national Constitution imposing congruency with the EU Constitution, as regards regulatory patterns of democracy, fundamental rights protection etc. Core values and competences that are at issue are first, minimum standards, especially as regards fundamental rights protection, democracy, and possibly other principles such as the rule of law and, second, respect for matters coming under ‘constitutional identity’. This issue is closely linked to the transfer of additional powers to the EU level.

38 This is a classic in comparing legal orders: eg Uwe Kischel, ‘Fragmentierungen im Öffentlichen Recht: Diskursvergleich im internationalen und nationalen Recht’ (2017) 77 VVDStRL 285, 306f, 309f.

10  Stefan Griller In some instances, those majorities might be difficult to obtain. Some issues, especially relating to the ‘sovereignty’ of the country, including ‘budgetary sovereignty’ are especially sensitive and claimed by some commentators to be insurmountable as long as the national Constitution remains respected. The protection of fundamental rights and freedoms, namely safeguarding the standard of protection of the national Constitution, is an issue for all countries. In some (such as Germany) the Constitution requires a standard of protection at the EU level that is ‘essentially comparable’ to that afforded by the national Constitution. In some countries (such as Sweden), similar compromise seems possible for some fundamental rights, but not for all. In other countries (such as Finland and Poland), similar compromise is not in sight, or at least is not yet accepted. At least in Poland this is related to scepticism vis-à-vis the primacy of EU law in general. A specific case is Article 23 of the German Basic Law. Apart from fundamental rights protection, as already mentioned, it specifies explicit barriers: the democratic, social, federal and subsidiarity principles, and the rule of law. These principles have to be respected, by German organs, in their decisions on transfers of competences to the EU level, in their participation in the EU legislature, and in the implementation of EU law. These requirements take on a ‘European’ meaning: standards that are commensurate with the status and the function of the Union. It may be fair to conclude that, not only because of these explicit integration conditions, but also because the German Constitutional Court has exercised intense control over the decades, the German approach is closely observed by other countries. The jurisprudence of the Constitutional Court is specifically explicit, especially when it comes to defining constitutional core competences and ultra vires issues. Among the aforementioned principles, the democratic principle is of specific weight. First and foremost, this is true for Germany, where the Constitutional Court introduced a new twofold Solange formula in its Lisbon ruling. In that formula the principle of conferral and the maintenance of a ‘well-balanced equilibrium’ in the distribution of competences between the Member States and the EU assumes a primary role. The German parliament (Bundestag) retains functions and powers of substantial importance, and the German legislature may only consent to transfers of competences and treaty amendments whose effects are foreseeable. Even if this approach has received severe criticism in German academic writing, it is crucial for the further transfer of powers through Treaty amendments. Second, even if the constitutional text or the respective rulings of the (constitutional) courts might be less detailed and less far-reaching in other countries, preserving democracy, including achieving a balance with the controversial concept of compensating the loss of decision-making power for national parliaments by enhancing parliamentarianism at the EU level, is of constitutional relevance everywhere. It is not decisive whether the constitutional texts allowing for the transfer of powers to the EU include an explicit reference to the preservation of democracy (as in Finland) or not (as in Austria, the Czech Republic or Poland), or refer in a more general manner to constitutional principles including democracy (as in Sweden). As will be demonstrated more in detail, budgetary decision-making autonomy – or parliamentary budgetary sovereignty – is an important concretisation of this reservation.39 It must be mentioned that in some countries the preservation of democratic decision-making powers at national level is further specified and thereby closely intertwined with another substantive barrier: the preservation of national statehood or sovereignty in the sense that the creation of a European federation at the expense of national statehood would be unconstitutional. This is so in Germany, where the Constitutional Court not only identified ‘essential areas of democratic

39 Even

if the GCC reconfirmed that participating in the EMU is covered by the Basic Law’s integration concept.

The Legal Background of Member States’ Positions  11 formative action’ (such as the civil and military monopoly on the use of force), which would be exempt from the transfer of powers to the EU, but is also the guardian of core elements of the constitution such as the democratic principle, the social state principle, the federal state principle, and the rule of law principle. These substantive principles are commonly regarded as the German ‘constitutional identity’. Due to the eternal guarantee of the German Basic Law, it is even out of the hands of the constitution-amending legislature. Again, even if this limitation is spelt out in less detailed fashion in other Constitutions, the preservation of statehood is certainly a crucial barrier for further integration for all Member States. For some, this is included in the notion of ‘sovereignty’ (as in the Czech Republic, France, Finland, Germany, Italy or Poland), for others, the same is true even if the term is avoided (as in Austria, or in Sweden). The transfer of further competences to the EU is always touching on the issue of a possible impact on sovereignty, even if this is partly avoided in the debate by using different expressions: competences or sovereignty are not ‘transferred’ but ‘shared’ with other EU Member States. In France, for example, further amendments of the Constitution will be required for any transfer of competences which jeopardises the ‘fundamental conditions of the exercising of sovereignty’ either because these transfers (i) do not relate to those already permitted in the Constitution or because (ii) there are modifications of the exercise of competences already transferred (such as replacing unanimity in the Council by qualified majority voting). A transfer of competences, by contrast, appears to be beyond the reach of ‘normal’ constitutional amendments. In other countries, however, and irrespective of the constitutional dimension at stake, the Constitutions allow further transfer of powers without an explicit constitutional amendment. Qualified majorities modelled after requirements foreseen for constitutional revision are needed in most cases of transferring powers. This is the case for example in Austria, Finland and Poland.

B.  Conditions for the Further Transfer of Powers Clearly, the core values and competences identifiable within national constitutional law at the same time can be seen as barriers to further integration. Several possibilities have to be differentiated in that regard. First, there is a margin of discretion for further transfer of powers that does not require a constitutional amendment at all. This transfer may not only consist in opening up new fields of activity for the EU, but also the transfer of matters from unanimity to qualified majority voting in the Council.40 While this transfer is to a certain extent possible, the national requirements differ considerably. Germany can again serve as an example. While it appears to be fully constitutional in Germany to amend the EU Treaties and transfer additional powers to the EU within certain less ‘sensitive’ fields by a ‘simple’ law (Zustimmungsgesetz), there is a range of further restrictions in other cases. The possibility to use a ‘simple’ law for the transfer of powers is specifically remarkable insofar as such transfer might affect the division of competences as foreseen by the German Basic Law. Nevertheless, no explicit amendment of the text of the Basic Law is required. By contrast, making use of, for example, simplified treaty amendments, the general bridging clause or specific bridging clauses would require the approval of parliament not only after, but even before the draft decision by the European Council can be taken. The parliamentary decision, however, could still be taken by simple majority. Further transfers in other fields might require previous amendments

40 Eg

on the basis of Art 48 para 7 TEU, the so-called general bridging clause.

12  Stefan Griller of the Constitution, and several transfers would, according to the jurisprudence of the German Constitutional Court, be entirely excluded, as mentioned above. The situation is comparable in most other countries in its complexity, yet different in detail. In France, additional transfer of competences will require further amendments to the Constitution. Abandoning national sovereignty by further transferring competences is not even a topic in the debate – it is simply beyond the ambit of the debate. In Austria and Finland, a qualified (twothirds) majority is required for further transfer of powers, but no formal amendment of the Constitution. Insofar as constitutional amendments are required for further integration, differences in respective requirements become crucial and, almost inevitably, at the same time influencing interpretative efforts and motivation to establish the need for such a step. Where, as in Bulgaria, the hurdles for constitutional amendments are deemed insurmountable, such impediment is, depending on the political estimation of a tabled proposal, used either to discredit it as ‘unconstitutional and unfeasible’, or to restrict the scope of the constitutional provisions that impose changes to the Constitution as a prerequisite for consent in order to pave the way for changing the EU Treaties.

C.  Scrutiny of Secondary Legislation, Especially Ultra Vires Doctrine Ultra vires acts of the EU are a traditional topic not only in the academic debate on the EU, but also in the jurisprudence of several national courts. Over decades this has been an implicit but never exercised ‘threat’ to (permanently) disapply secondary Union legislation within the legal orders of a Member State.41 As such, it has been excerting a certain preventive effect which might have influenced daily practice. It may be fair to conclude that it was the German Constitutional Court (GCC) starting the debate at the level of constitutional or otherwise highest courts. Later, others followed the GCC’s approach, specifically in the Czech Republic, Denmark, and Poland.42 Recently, however, the GCC, for the first time in history, declared an ECB-decision as well as a CJEU-judgment ultra vires and consequently null and void within the German legal order.43 This judgement, controversial as it may be, could be a game changer in the relationship between EU law and national law. Ultra vires acts may have different characteristics. They may range from the severely flawed use of conferred competences without specific repercussions for the national ‘constitutional identity’ to violations of national constitutional provisions, for example in cases where the EU allegedly or in fact violates human rights guarantees. Clearly, it is specifically in those latter cases where the constitutional barriers to integration are of crucial importance, sometimes inseparably interwoven with the competence issue, even if the two can and have to be discerned. The landscape is full of different flowers, not only between the Member States, but sometimes also within one and the same Member State. With respect to ultra vires acts, the difference between countries equipped with a constitutional court empowered with exercising ex post review of subordinated law against the yardstick of the Constitution, and countries without such a mechanism, appears to be very influential. The spelling out and concretisation of constitutional barriers is more explicit and visible in countries with a constitutional court such as the 41 However, the open refusal of the Czech Constitutional Court (see below, n 55) and the Danish Supreme Court (see below, n 54) to accept judgments of the CJEU is of equal gravity. 42 Compare the brief overview in Mayer, Wendel, ‘Die verfassungsrechtlichen Grundlagen des Europarechts’, §§ 239 ff. 43 Infra in the text after fn 74.

The Legal Background of Member States’ Positions  13 Czech Republic, (nowadays also) France, Italy, and Poland, if compared to countries like the Netherlands, Finland and Sweden. This is not to say that the topic is less important for the latter. However, judicial ex post review in these countries is decentralised and traditionally limited to the correction of ‘manifest’ or ‘obvious’ errors. In addition, it is often dubious whether EU law might come under the reviewable measures as specified by the national Constitution. This makes an open conflict less likely. Against this background, the two aspects of the ultra vires debate should be kept apart. In Germany, the human rights barrier is currently especially defined by the German Constitutional Court’s Bananas ruling.44 Accordingly, constitutional complaints and submissions to the GCC by courts which challenge secondary EU law on the basis of German human rights are inadmissible from the outset if their grounds do not state that the evolution of European law, including relevant rulings of the CJEU, has resulted in lowering the level of protection below the indispensable standard of fundamental rights protection. This implies that the Court still claims a reserve competence. The hurdles for its activation are, however, quite unanimously regarded as being almost insurmountable. Human rights protection is also a core feature in all other Member States, even if the difference between treaty amendments and secondary EU legislation remains sometimes unaddressed. This difference is of more explicit relevance especially when constitutional courts are involved. Such involvement prompted respective rulings especially in France and Italy, but also in Poland and Austria. In Finland and Sweden, similar deliberations can be found mainly in opinions of parliamentary committees entrusted with, inter alia, the ex ante scrutiny of implementing secondary EU legislation. The competence barrier, again starting with Germany,45 is derived from the requirement that the use of transferred competences must be predictable. This means that the Court regards itself to be competent to decide whether an act of secondary EU law is ultra vires, which has caused an intense academic discussion on whether the CJEU or national courts are competent to act as the ‘final arbiter of constitutionality’ in Europe. Arguably, the reasoning in the Lisbon ruling may be seen as a specific feature of this leg of ‘ultra vires review’. In that ruling the German Constitutional Court announced that in the future it will also scrutinise the exercise of EU competences by means of an ‘identity review’ in order to preserve the inviolable core content of the Basic Law’s constitutional identity. The German Court underlined that this type of review is restricted to ‘obvious transgressions’ of EU competences and applies only ‘exceptionally, and under special and narrow conditions’. These conditions, however, the GCC saw fulfilled in the ECB’s measures on ‘quantitative easing’ and the CJEU’s verdict to uphold them.46 Also in other countries, specifically France, jurisprudence specified constitutional restrictions for implementing secondary EU law: implementing a directive must not run counter to a rule or principle that is inherent to the constitutional identity of France. The constituting power could, however, consent to necessary amendments of French constitutional law.

D.  Dissemination of Constitutional Principles Throughout the EU? The creation, shaping and interpretation of national constitutional barriers to European integration started much after the beginning of the European integration process in the 1950s and



44 2

BvL 1/97, 07.06.2000, Bananenmarktordnung (Banana Market Organization), BVerfGE 102, 147–66. most important decision until recently has been 2 BvR 2661/06, 06.07.2010, Honeywell, BVerfGE 126, 286–331. 46 Compare infra in the text after fn 77. 45 The

14  Stefan Griller intensified during the decades since. It happens in a sort of indirect and partly implicit dialogue47 between the national legislators, the national constitutional courts, the CJEU, and also the Member States as the ‘Masters of the Treaties’.48 One might even qualify it as an emerging system of informal cooperation between the various actors at national and European level.49 This is in itself a remarkable effect of European integration. However, it is very seldom that this dialogue is made transparent in the sense that explicit reference is made to a concrete piece of foreign legislation, or decision of another court – with the natural exception of preliminary references and infringement procedures before the CJEU and the respective reaction of national legislators or courts. Consequently, common constitutional norms regulating EU integration are rarely or almost never created by formal consent or explicit reference, but rather by concurring or conflicting reasoning of courts and/or national legislators reflecting developments in various areas. This is how ‘norm creation’ operates in the emerging ‘common constitutional space’ with an everincreasing body of ‘constitutional traditions common to the Member States’.50 However, important exceptions can be identified, where reciprocal influence can be identified. Of specific importance in this regard is the reservation of the German Constitutional Court vis-à-vis EU legislation that could go against the standards of fundamental rights protection, the core of inalienable national competencies, or allegedly would be ultra vires. Several supreme courts of other Member States adopted this approach and applied it to cases before them. Arguably, this was partly done by ‘sharpening’ the control instruments developed by the German Constitutional Court, and one might even say that the line of reasoning that was used was to some extent misunderstood. This can be illustrated with a few remarks. The jurisprudence of the German Constitutional Court developed its reservation vis-à-vis unconditional supremacy of EU law, which would apply as long as (Solange) fundamental rights protection would not be sufficiently guaranteed by the CJEU. This jurisprudence doubtlessly influenced the CJEU’s subsequent jurisprudence resulting in the development of a more or less fully fledged system of protection by the CJEU. This development motivated the German Constitutional Court, but certainly also courts in other countries, to redefine the intensity of scrutiny of EU law and abandon detailed scrutiny as long as the CJEU guarantees a sufficient standard of protection. The Swedish constitutional requirement that the transfer of decision-making powers to the EU is restricted in the sense that the level of fundamental rights protection within the EU ‘corresponds’ to that afforded under the Swedish Constitution and the European Convention for the Protection of Human Rights and Fundamental Freedoms, was clearly inspired by the Solange jurisprudence and the subsequent ‘codification’ of this jurisprudence by the German legislator. Close attention was also paid to the GCC’s Lisbon ruling and the concept of ultra vires, especially in the subsequent proceedings before the Polish and the Czech constitutional courts. Several supreme courts (in France,51 Poland52 and Spain53) welcomed the approach without nullifying the EU law under scrutiny. The Danish Supreme Court,54 as well as the Czech

47 See Claes, de Visser, Popelier and Van de Heyning (eds), Constitutional Conversations in Europe. 48 The mentioned Arts 4 and 5 TEU as amended by the Treaty of Lisbon are an example for the latter, equally not openly revealing the constitutional debate surrounding them. 49 Compare also Grabenwarter, ‘National Constitutional Law Relating to the European Union’, especially 125ff; Mayer, Wendel, ‘Die verfassungsrechtlichen Grundlagen des Europarechts’, §§ 232ff, with further references. 50 Art 6 para 3 TEU. 51 Conseil constitutionnel, 27.6.2006, Décision n° 2006-540 DC. 52 Trybunał Konstytucyjny, 16.11.2011, SK 45/09, see www.trybunal.gov.pl/sk4509_DE.pdf, 19ff. 53 Tribunal Constitucional, 13.12.2004, explanation DTC 1/2004, German translation: EuR 2005, 339. 54 Case 15/2014, 6 Dec 2016, Ajos, 45ff. The Supreme Court found that direct effect between individuals, that was ‘not foreseen in the Law on accession’ could not be created by the CJEU, that is would not be applicable in Denmark.

The Legal Background of Member States’ Positions  15 Constitutional Court,55 went one step further and, without much ado, denied the binding force of CJEU judgments allegedly beyond the CJEU’s competence. It is likely that the recent PSPP-judgement of the GCC will stimulate this development, to the detriment of EU unity.

V.  Lessons to be Learnt from the Times of Crisis A.  Scarce but Growing Evidence for Limits to EU Measures There is, probably surprisingly, little to find on important litigation before the EU Courts concerning crisis management measures, be it measures taken under EU law or measures taken outside the EU legal order. This may be explained by the contention that, during the crisis, legal action against the measures taken to counter the crisis could be actually seen as further fuelling the crisis. Both, EU organs and Member States consequently observed self-restraint. In addition, non-EU measures such as the ESM and the TSCG were even more open to challenge before national courts. The cases below address arguments that at least include typical aspects of national reservations against EU measures.

i. The Pringle case The Pringle case56 was the first important CJEU case on crisis measures. It arguably paved the way to the generous attitude of scrutiny of such measures in general. The allegations, though, were not typical for Member States’ reservations against EMU integration. It was, inter alia, claimed that Ireland (pars pro toto), by ratifying, approving or accepting the Treaty establishing the European stability mechanism (ESM Treaty), would undertake obligations which would be in contravention of several provisions of the EU and FEU Treaties concerning economic and monetary policy and would directly affect the exclusive EU competence in relation to monetary policy. Furthermore, Mr Pringle claimed that the ESM Treaty confers on the Union’s institutions new competences and tasks which are incompatible with their functions as defined in the EU and FEU Treaties. Most and before all, there was the alleged violation of the so-called no bailout clause (Article 125 TFEU). The competence claim favouring exclusive EU competence is an unusual claim coming from a national procedure.57 However, the reason for this was, not the least, the financial burden connected with ESM membership. The second claim, too, is to be seen in this vein. It implied, at least, the contention that EU organs were prohibited to engage in the tasks conferred to them, which equals the argument that they would violate the principle of conferral.58 This, by contrast, is a typical ‘national reservations argument’. Both arguments were rejected by the CJEU. The first was done on the basis of the Court’s approach defining, for the first time in such clarity, monetary policy by its objectives – mainly

55 31.1.2012, Pl. ÚS 5/12, compare www.usoud.cz/view/GetFile?id=6416; the decision ‘discards’ the judgment of the ECJ in Case C-399/09, Landtová, ECR [2011], I-5573, and declares it irrelevant. 56 Case C-370/12, Pringle, ECLI:EU:C:2012:756. 57 For more details compare, eg Bruno de Witte and Thomas Beukers, ‘The Court of Justice approves the creation of the European Stability Mechanism outside the EU legal order: Pringle’ (2013) 50 CML Rev, 806–48 – which does not mean that this author shares all views taken in this piece. 58 See Paul Craig, ‘Pringle and Use of EU Institutions outside the EU Legal Framework: Foundations, Procedure and Substance’ (2013) 9 European Constitutional Law Review, 263ff.

16  Stefan Griller price stability59 – rather than its instruments. The purpose of the ESM, as the Court stressed, is not to maintain price stability, but rather meeting the financing requirements of members ­experiencing or threatened by severe financing problems. ‘Even if the activities of the ESM might influence the rate of inflation, such an influence would constitute only the indirect consequence of the economic policy measures adopted.’60 Consequently, EU competences appeared to be respected. On the borrowing of EU institutions, the CJEU drew on previous case law61 and found that the Member States are entitled, in areas which do not fall under the exclusive competence of the Union, to entrust tasks to the institutions,62 provided that those tasks do not alter the essential character of the powers conferred on those institutions by the EU and FEU Treaties.63 On these grounds, the CJEU could not find any violation of Article 13 TEU. Neither could the CJEU find a violation of Article 125 TFEU. By doing so, the Court ­loosened the restrictions previously assumed to exist for Member States. The Court stressed that this Article ‘is not intended to prohibit either the Union or the Member States from granting any form of financial assistance whatever to another Member State’.64 The – nevertheless undeniable – restrictions flowing from the provision is that Article 125 TFEU ensures that the Member States remain subject to the logic of the market when they enter into debt, since that ought to prompt them to maintain budgetary discipline. Compliance with such discipline contributes at Union level to the attainment of a higher objective, namely maintaining the financial stability of the monetary union.65

Consequently, ‘it must be held that that provision prohibits the Union and the Member States from granting financial assistance as a result of which the incentive of the recipient Member State to conduct a sound budgetary policy is diminished.’66 The activation of financial assistance by a stability mechanism such as the ESM would not be justifiable under Article 125 TFEU unless it is indispensable for the safeguarding of the financial stability of the eurozone as a whole, and subject to strict conditions. By contrast, according to the CJEU, financial assistance remains possible as long as the recipient Member State remains responsible for its commitments, and the conditionality prompts a sound budgetary policy. ESM assistance was found compatible with these requirements. The main arguments were that the ESM will not act as a guarantor of the debts and will neither assume them. ‘On the contrary, such assistance amounts to the creation of a new debt, owed to the ESM by that recipient Member State, which remains responsible for its commitments to its creditors in respect of its existing debts.’67 59 Art 127(1) TFEU; see Pringle, paras 53ff. 60 Ibid, para 97. 61 Ibid, para 158. 62 Joined Cases C-181/91 and C-248/91, Parliament v Council and Commission [1993] ECR I-3685, paras 16, 20 and 22; Case C-316/91, Parliament v Council [1994] ECR I-625, paras 26, 34 and 41. 63 Opinion 1/92, European Economic Area [1992] ECR I-2821, paras 32 and 41; Opinion 1/00, European Common Aviation Area [2002] ECR I-3493, para 20; and Opinion 1/09, European and Community Patents Court [2011] ECR I-1137, para 75. 64 Pringle, para 130. 65 Ibid, para 135. 66 Ibid, para 136. 67 Ibid, paras 137–43; quotation taken from para 139. From the vast literature in the same vein compare esp Gregorio Merino, ‘Legal developments in the economic and monetary union during the debt crisis: The Mechanisms of Financial Assistance’ (2012) 49 CML Rev, 1613–46, 1625ff. On the well-founded critique against this reasoning compare, eg Paul Craig, ‘Pringle: Legal Reasoning, Text, Purpose and Teleology’ (2013)1 Maastricht Journal, 7ff; Christoph Ohler ‘Art 125 AEUV’ in H Siekmann (ed), EWU. Kommentar zur Europäischen Währungsunion (Tübingen, Mohr Siebeck, 2013) Rz 14; Rainer Palmstorfer, ‘To Bail Out or not to Bail

The Legal Background of Member States’ Positions  17

ii. The Gauweiler and Weiss cases a)  The Findings of the CJEU Both of the cases concerned the so-called non-traditional measures of the ECB during the crisis and the alleged overstepping of its mandate. At stake were the outright monetary transaction programme (OMT programme)68 and the PSPP-Decision by the ECB, the latter creating the so-called quantitative easing.69 These measures refer to the massive intervention in the private and public bond market in purchasing covered bonds and asset-backed securities. These activities provoked the first preliminary ruling procedures ever initiated by the German Constitutional Court. The result could have been, and the questions put by the Constitutional Court indeed suggested, that the measures taken should have been qualified as ultra vires acts of the ECB. Consequently, they would have had to be annulled, most and before all by the CJEU. Therefore, the controversy was a typical one concerning integration reservations, the contention being at the outset in both cases that the national Constitutional Court could, even if the CJEU would uphold the measures, disagree for reasons of national Constitutional integration boundaries, and declare the measures illegal, at least within the scope of the German legal order. The CJEU, however, could not see that the ECB had overstepped its mandate, and upheld both measures. It did so by confirming the line of reasoning it had started in the Pringle case, namely that the determination whether a measure falls within the area of monetary policy is principally depending upon the objectives of that measure, while the instruments employed are only of secondary relevance.70 It held ‘that a monetary policy measure cannot be treated as equivalent to an economic policy measure for the sole reason that itmay ave indirect effects that can also be sought in the context of economic policy.71 On this basis the CJEU confirmed that both the OMT programme and the quantitative easing mechanism remained within the powers of the ECB. Furthermore, they were found to be proportionate72 and also respecting the prohibition to grant overdraft facilities or any other type of credit facilities of Article 123 TFEU.73 b)  The PSPP-Judgment of the GCC While the GCC accepted the CJEU’s verdict in Gauweiler, it disagreed in Weiss, with serious consequences. In its so called PSPP-judgement,74 the Court found that the Federal Government and the Bundestag violated the complainants’ constitutional rights by failing to take steps Out? The Current Framework of Financial Assistance for Euro Area Member States Measured against the Requirements of EU Primary Law’ (2012) 37 ELRev, 771, 777f; Robert Rebhahn, Solidarität in der Wirtschafts- und Währungsunion (Baden-Baden, Nomos, 2015) 188ff. 68 Case C-62/14, Gauweiler, ECLI:EU:C:2015:400. 69 Case C-493/17, Weiss, ECLI:EU:C:2018:1000: ‘PSPP’ stands for ‘Public Sector Purchasing Programme’, the most important part of the ECB’s non-traditional measures taken to fight the economic crisis, also labelled as ‘quantitative easing’. Starting in 2015, the ECB purchased up to €80 billion per month (2016 and 2017) in order to support economic stability and avert inflation. 70 C-62/14, Gauweiler, paras 46ff; Case C 493/17, Weiss, paras 53ff. 71 C-62/14, Gauweiler, para. 52; C-493/17, Weiss, para 61. 72 C-62/14, Gauweiler, paras 66ff; Case C 493/17, Weiss, paras 71ff. 73 C-62/14, Gauweiler, paras 93ff; Case C 493/17, Weiss, paras 101ff. 74 GCC, Judgment of the Second Senate of 05 May 2020 – 2 BvR 859/15, ECLI:DE:BVerfG:2020:rs20200505.2 bvr085915. The English version of the judgement is available at https://www.bundesverfassungsgericht.de/SharedDocs/ Entscheidungen/EN/2020/05/rs20200505_2bvr085915en.html (last visited July 2020). The judgment was handed down during the publication process of this book. In order not to omit this important development, this author opted for the compromise to go more into the details of the reasoning than with any other judgment dealt with in this report.

18  Stefan Griller challenging the ECB’s PSPP decision, which created the programme to purchase Member States’ bonds via secondary markets. In the reasons given, the GCC declared both the ECB’s decision and the CJEU’s judgment upholding the decision as ultra vires acts75 depriving them of their “binding force in Germany”. An ultra vires act of the ECB or the CJEU is, according to the Court, “not to be applied in Germany, and has no binding effect in relation to German constitutional organs, administrative authorities and courts”.76 The GCC contends that the ECB measure and the CJEU judgment in essence violate the limits for ECB action which is only empowered to conduct monetary policy (but not economic policy), or at least that both institutions failed to present intelligible reasons for respecting these limits. At first glance, it continues with its decade-old yardstick that an EU act “violates the principle of conferral” only if it is “… established that the violation of competences is sufficiently qualified. This requires that the act manifestly exceeds EU competences, resulting in a structurally significant shift in the division of competences to the detriment of the Member States. … This is generally the case if the exercise of the competence in question … were to require a treaty amendment” in accordance with Art. 48 TEU or the application of the “evolutionary clause (Evolutivklausel)” in Art. 352 TFEU.77 Such “ultra vires review must be exercised with restraint” respecting that “interpretation and application of EU law, including the determination of the applicable methodological standards, primarily falls to the CJEU”.78 Despite this starting point, the GCC enters into what can only be qualified as a rather detailed scrutiny of the CJEU’s reasoning and ends with harsh criticism. First, the CJEU should, according to the GCC, have performed its proportionality test (not only regarding the exercise of the ECB’s competence, but already) for delimiting monetary and economic policy. It contends that the CJEU “manifestly fails to give consideration to the importance and scope of the principle of proportionality … , which also applies to the division of competences, …”79 Second, it holds that the CJEU disregarded the actual effects of the PSPP, and thus did not properly apply the proportionality test. “Applied in this manner, the principle of proportionality cannot fulfil its corrective function for the purposes of safeguarding the competences of the Member States, …. The interpretation undertaken by the CJEU essentially renders meaningless the principle of conferral …”80 The Court insinuates that the CJEU’s judgment was “informed by the notion that a generous interpretation of the specific competence conferred may, to a certain extent, be compensated by a sound proportionality assessment”.81 As for the consequences, the GCC holds that constitutional organs “have a duty to take active steps against the PSPP”, based “on their responsibility with regard to European integration (Integrationsverantwortung)”.82 They “must … actively take steps seeking to ensure adherence to the European integration agenda (Integrationsprogramm) and respect for its limits … To this end, they must take suitable action to ensure adherence to the European integration agenda (Integrationsprogramm) … The Federal Government and the Bundestag must clearly communicate their legal view to the ECB or take other steps to ensure that conformity with the Treaties is restored.”83 Generally, this “also applies to the Bundesbank … Following a transitional period of

75 2

BvR 859/15, paras 165, 154 and 163, respectively. para 234. 77 Ibid, para 110. Compare for the previous case law supra in the text near fn 45. 78 Ibid, para 112. 79 Ibid, para 119. 80 Ibid, para 123. 81 Ibid, para 128. 82 Ibid, para 230. 83 Ibid, para 231 f. 76 Ibid,

The Legal Background of Member States’ Positions  19 no more than three months … , the Bundesbank may thus no longer participate in the implementation and execution” of the PSPP-Decision, “neither by carrying out any further purchases of bonds nor by contributing to another increase of the monthly purchase volume, unless the ECB Governing Council adopts a new decision that demonstrates in a comprehensible and substantiated manner that the monetary policy objectives pursued by the ECB are not disproportionate to the economic and fiscal policy effects resulting from the programme. On the same condition, the Bundesbank must ensure that the bonds already purchased under the PSPP and held in its portfolio are sold based on a – possibly long-term – strategy coordinated with the ESCB.”84 c)  Some Remarks on the PSPP-Judgment In its PSPP-judgement the GCC, for the first time ever, declared an EU measure and the related CJEU judgment upholding it ultra vires and therefore inapplicable in Germany. The reasons provided go to the heart of the economic integration agenda in stipulating methods and details for drawing the borderline between monetary and economic policies in the EU. The GCC is claiming that both the ECB and the CJEU are gravely overstepping their mandate. This begs the question which is at the centre of the decade-long tension between the CJEU and highest national courts: is the GCC encroaching upon the competences that were rightfully transferred to the ECB and the CJEU, or is it, by contrast, only safeguarding what legally remained a national competence, against grave errors committed by EU institutions? On a material level, this commentator tends to share the view that it is the GCC that erred. While this author85 shares the methodological starting point of the GCC’s reasoning, it is contended that the Court disrespected its own standards of “residual review”. Already its starting point appears to be flawed. Art. 5(1) TEU reads: “The limits of Union competences are governed by the principle of conferral. The use of Union competences is governed by the principles of subsidiarity and proportionality.” Contrary to what the GCC is claiming, the proportionality test is to be performed for the use of the union competences, not for its delimitation. And this is what the CJEU usually does. The case at issue is no exception, contrasting to what the GCC is suggesting. Related to the use of the ECB’s powers, the CJEU performed a proportionality test,86 reviewed the respective ECB’s reasoning,87 and addressed the general difficulty that the CJEU, when scrutinising the proportional application of the law, can only intervene in cases of “a manifest error of assessment”, given that proportionality, to put it differently, places “broad discretion” with the competent authority, in our case the ECB.88 On these grounds, the CJEU did not find sufficient reasons to nullify the ECB’s measure, even if it did not exclude possible criticism. It should be added that it makes no big difference whether the CJEU performs the proportionality test when delimiting monetary policy or scrutinising its use. In substance, the test is the same. So is the result; the CJEU would either uphold the ECB’s measure, or nullify it. This would only be different if affirming the ECB’s competence would at the same time exclude the purchase of bonds by Germany, arguing that this would encroach on the EU’s exclusive competence for monetary policy. However, given the overlap between monetary and economic policy, such consequence can be ruled out, and there is not the slightest hint that the CJEU would see



84 Ibid,

para 235. supra fn 14 237, 258 ff, 262 ff. 86 Weiss (fn 69), paras 71ff. 87 Ibid, para 29ff. 88 Ibid, para 91f. 85 Griller,

20  Stefan Griller this differently. Buying bonds by Member States would normally come under economic policy. Such a measure could never perform monetary policy for the Eurozone. Given all these circumstances, it seems fair to conclude that the CJEU acted not ultra vires but within its limits, even more so in their reading by the GCC: ‘ … , as long as the CJEU applies recognised methodological principles and the decision it renders is not objectively arbitrary, the Federal Constitutional Court must respect the decision of the CJEU even when it adopts a view against which weighty arguments could be made. The mandate, conferred upon the CJEU in Art. 19(1) second sentence TEU, to ensure that the law is observed in the interpretation and application of the Treaties necessarily entails that the CJEU be granted a certain margin of error …’89 However, this is totally different from the GCC’s conclusions. It characterises the CJEU’s reasoning as ‘simply not comprehensible’, ‘simply untenable’ and ‘simply not comprehensible and thus objectively arbitrary.‘90 This appears as ill founded. It is contended that it is the GCC that is mistaken here, by insisting to perform the proportionality test for the delimitation and not for the use of EU competences. Moreover, its criticism concerning the quality of the test goes beyond a residual scrutiny that would accept the prerogative of the CJEU. Also on a procedural level, the GCC departed from its previous jurisprudence which would have required to confront the CJEU, in a second preliminary procedure, with its critique before entering into the deliberation to declare the ECB’s decision and the CJEU’s judgment ­inapplicable.91 It goes without saying that, contrasting to this author’s intra-systematic criticism starting from the methodological basis of the GCC, the latter’s judgment is even more fundamentally flawed for those commentators that argue that ultra vires control by national courts may never include the option to disapply EU law. Incompatibility between EU and national law could only be rectified by either changing the former or the latter, or by leaving the EU.92 This view is not shared here. However, the PSPP-judgment can be seen as confirming those who warned against the dangers of national identity review performed by national courts.93 Undeniably, this danger includes the following. The reasoning of the GCC might be taken as an invitation to turn it around: if CJEU judgments can be ultra vires and, by consequence, inapplicable, why shouldn’t the same be true for GCC judgments? What would hinder EU organs, specifically the European Commission, the CJEU, and, in the case at issue, the ECB, and with it the Bundesbank as an integrated organ of the European System of Central Banks (ESCB) and thus participating in its independence, arguing that the GCC’s judgment is manifestly encroaching on their competence, and consequently null and void? Despite all efforts to calm the actual controversy, there is at least the looming threat for the “war between judges”, with no final arbiter in sight. Caution, in the form of judicial self-restraint, seems imperative before the rising of an open conflict. In hindsight, it is much more difficult to tame its destructive force.

89 2 BvR 859/15 (fn 74), para 112. 90 All quotes taken from ibid, paras 116, 117 and 118. 91 BVerfGE 75, 223 – Kloppenburg-Beschluss. This is, what the Italian Constitutional Court recently had done – with the result that the CJEU in principle embraced that reasoning of the national court, and by doing so increased the leeway to depart from EU secondary legislation; compare Case C-42/17, M.A.S. (Taricco II), ECLI:EU:C:2017:936 (see supra in the text near fn 29). 92 E.g. R. Daniel Kelemen, On the Unsustainability of Constitutional Pluralism: European Supremacy and the Survival of the Eurozone, 23 Maastricht Journal of European and Comparative Law 2016, 136, at 149: He contends that, if constitutional courts would consider an EU act ultra vires or a threat to constitutional identity, the governments could be compelled ‘to either amend their constitutions, to work through the EU political process to change the EU legal norm in question or secure an opt-out, or, if necessary, to withdraw from the Union altogether.’ 93 E.g. Fabbrini/Sajó, The dangers of constitutional identity, Eur Law J 2019, 1ff.; Compare also Kelemen (fn 92) 136ff with further references.

The Legal Background of Member States’ Positions  21

iii. The Ledra Advertising case The Ledra Advertising case94 concerned the issue of the legal boundaries in concluding memoranda of understanding under the ESM between the beneficiary country and the European Commission acting on behalf of the ESM. As regards Member States reservations against EMU integration, this concerns a typical aspect – namely the standards of fundamental rights protection as compared to the national level – in combination with the controversial borrowing of EU institutions to perform tasks under the ESM. Reversing the findings of the General Court, the CJEU held that the Commission retains, irrespective of the applicability of Article 236 TFEU, within the framework of the ESM Treaty, its role of guardian of the Treaties, so that it should refrain from signing a memorandum of understanding whose consistency with EU law it doubts.95 By doing so, the Court avoided the result that the Commission would be exempt from respecting fundamental rights when it is acting on behalf of the ESM, a result that would certainly have provoked the objection that the standards of fundamental rights as general principles of EU law would be violated. By contrast, comparing the Cypriot standard of protection with the one applicable to the Commission was not even an issue. The CJEU held that the bail-in restrictions the appellant faced under the memorandum of understanding concluded between the ESM and the Republic of Cyprus did not violate its rights under the Charter, specifically the right to property. The Court found that this right is not absolute and that its exercise can be subject to restrictions justified by objectives of general interest.96 The Court saw these conditions fulfilled in the case at issue. In view of the objective of ensuring the stability of the banking system in the euro area, and having regard to the imminent risk of financial losses to which depositors with the two banks concerned would have been exposed if the latter had failed, such measures do not constitute a disproportionate and intolerable interference impairing the very substance of the appellants’ right to property. Consequently, they cannot be regarded as unjustified restrictions on that right …97

Again, the Court applied a very generous yardstick of scrutiny, given that the cited reasoning is not more than an affirmation without any reflections on alternatives. The Court, therefore, did not elaborate on the necessity of the measure compared to other options. However, that could have been expected under a thorough proportionality test.

B.  More Evidence from the National Controversies on the Maastricht and Lisbon Treaties, the TSCG and the ESM i.  The Significance of the Controversies on the TSCG and the ESM The EMU-related measures taken outside the EU legal order, in particular the TSCG and the ESM and its predecessors, have created the biggest number of legal controversies in recent years. The use of intergovernmental instruments raised controversies primarily within the academic circles98 centred on the actual existence and the details of the yardstick of scrutiny flowing of

94 Joined Cases C-8/15 P to C-10/15 P, Ledra Advertising, ECLI:EU:C:2016:701. 95 Ibid, paras 55 and 59. 96 Ibid, para 69. 97 Ibid, para 74. 98 Compare only Paul Craig, ‘The Stability, Coordination and Governance Treaty: Principle, Politics and Pragmatism’ (2012) ELRev 231; Paul Craig, ‘Pringle and Use of EU Institutions outside the EU Legal Framework: Foundations,

22  Stefan Griller the EU Treaties. However, with the exception of the Pringle case, these controversies did not find their way to the EU courts. Most measures (and above all, EMU-related measures) outside the EU legal framework caused legal contestation against the yardstick of national Constitutions before national courts. Such measures might be more exposed to direct scrutiny against constitutional limits and challenges, given that these are Member States’ measures that are barely subject to scrutiny before the EU courts. In some countries, such measures do not come under the constitutional EU membership clauses that would provide, to a certain extent, a shield against constitutional challenges, given that their main ambition is opening up the national legal orders to EU law. Nevertheless, as long as these specific circumstances are carefully taken into account, the national controversies on extra-EU measures highlight nevertheless pertinent constitutional limits for intra-EU developments, in particular as regards national identity and ultra vires perspectives. They touch upon the same issues as the Gauweiler and Weiss cases that dealt with EU (ECB) measures.99 Integrating the TSCG and/or the ESM into the EU legal order and creating a fiscal union beyond that would trigger the same type of competence controversy as in these judgments. Therefore, the constitutional debate on the TSCG and the ESM will certainly inform the future debate on amending the Treaties in order to allow for such integration.100

ii.  The Origin of the Arguments: The Maastricht and the Lisbon Treaties At the outset, however, it should be said that the basis for these debates was laid a long time ago, during the ratification procedures for the Maastricht and Lisbon treaties. Most prominent in this regard are the GCC’s judgments101 expressing the respective concerns. In their specificity, they are only relevant for the German Constitution. However, the fundamental approach voiced in these judgments can be seen as provoking widespread scepticism among European constitutional lawyers. Furthermore, the weight of these concerns cannot be underestimated, neither when it comes to Treaty changes, nor regarding the control reserve of Constitutional Courts vis-à-vis secondary EU legislation. In Lissabon (Lisbon Treaty) the GCC reconfirmed that it must be possible within the German jurisdiction to assert the responsibility for integration if obvious transgressions of the boundaries occur when the European Union claims competences … and to preserve the inviolable core content of the Basic Law’s constitutional identity by means of a identity review … The Federal Constitutional Court has already opened up the way of the ultra vires review for this, which applies where Community and Union institutions transgress the boundaries of their competences. If legal protection cannot be obtained at the Union level, the Federal Constitutional Court examines whether legal instruments of the European institutions and bodies keep within the boundaries of the sovereign powers accorded to them by way of conferral … Furthermore, the Federal Constitutional Court reviews whether the inviolable core content of the constitutional identity of the Basic Law pursuant to Article 23.1 third sentence in conjunction with Article 79.3 of the Basic Law is respected …102

Regarding these core contents, the GCC said: ‘In a democracy, the people must be able to determine government and legislation in free and equal elections … In a democracy, the decision of Procedure and Substance’ (2013) 9 European Constitutional Law Review, 263ff; Marcus Klamert, The Principle of Loyalty in EU Law (Oxford, Oxford Scholarship Online, 2014) 294ff. 99 See above near n 68. 100 Arguably, the European Commission tries to avoid that debate by claiming that not only integrating both the TSCG and the ESM into the EU legal order but also going beyond that could be done on the basis of existing competence clauses. However, this is highly debatable. 101 2 BvR 2134, 2159/92, 12.10.1993, Maastricht (Treaty of Maastricht), BVerfGE 89, 155-213; 2 BvE 2, 5/08, 2 BvR 1010, 1022, 1259/08, 182 /09, 30.6.2009, Lissabon (Lisbon Treaty), BVerfGE 123, 167–437. 102 Ibid, para 240.

The Legal Background of Member States’ Positions  23 the people is the focal point of the formation and retention of political power.’103 Contending that the EU is not, and is probably never going to be, a fully fledged democracy, the GCC opines that core issues have to remain at national level. Consequences for economic integration, and specifically the preservation of ‘budget sovereignty’ for the national level are substantial. A transfer of the right of the Bundestag to adopt the budget and control its implementation by the government which would violate the principle of democracy and the right to elect the German Bundestag in its essential content would occur if the determination of the type and amount of the levies imposed on the citizen were supranationalised to a considerable extent. The German Bundestag must decide, in an accountable manner vis-à-vis the people, on the total amount of the burdens placed on citizens. The same applies correspondingly to essential state expenditure. In this area, the responsibility concerning social policy in particular is subject to the democratic decision-making process, which citizens want to influence through free and equal elections. Budget sovereignty is where political decisions are planned to combine economic burdens with benefits granted by the state. Therefore the parliamentary debate on the budget, including the extent of public debt, is regarded as a general debate on policy.104

The Court mitigates the consequences by stressing that not every – European or international – obligation with budgetary effects would necessarily endanger the viability of the Bundestag as the responsible budgetary legislature. The openness to legal and social order and to European integration which the Basic Law calls for, include an adaptation to parameters laid down and commitments made, which the legislature responsible for approving the budget must include in its own planning as factors which it cannot itself directly influence. What is decisive, however, is that the overall responsibility, with sufficient political discretion regarding revenue and expenditure, can still rest with the German Bundestag.105

Against this background, further EMU integration106 will clearly be subject to this scrutiny of ‘budgetary sovereignty’, which might be seen as a common constitutional principle of the Member States. By definition, it would include limits to the transfer of powers to the EU level. As such, this is a classical issue of power distribution in a federal system.

C.  Specifying Limits for Further Integration107 i.  Litigation Concerning the TSCG The TSCG, a Treaty under general international law, concluded in 2012 among all EU Member States except the United Kingdom and the Czech Republic is closely related to and interwoven with the EMU system. Its core aims to foster budgetary discipline beyond the Stability and Growth Pact (SGP), as developed further by the so-called six-pack.108 Compared to the latter, the TSCG stipulates, as specification to the balanced budget rule, an even lower limit of the

103 Ibid, para 270. 104 Ibid, para 256. 105 Ibid, para 256. 106 Even if the GCC reconfirmed that participating in the EMU is covered by the Basic Law’s integration concept: Lissabon (Lisbon Treaty), para 248. 107 The following is drawing abundantly from and sharing the main conclusions with Elisabeth Lentsch, ‘National constitutional law as manifold steeplechase for fiscal integration’ in S Puntscher Riekmann/F Wasserfallen/Z Kudrna (eds), The Politics of Reforming the Economic and Monetary Union (London, ECPR Press, not yet published, 2020). 108 Art 2a Regulation 1466/1997. The six-pack is the 2011 package of EU secondary legislation consisting of five regulations and one directive, aiming at fostering and complementing the Stability and Growth Pact.

24  Stefan Griller annual structural deficit, namely 0.5 per cent of GDP at market prices, compared to 1 per cent in the SGP. In addition, it includes an obligation to implement that limit ‘through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes’.109 All contracting parties implemented this obligation.110 However, only a handful contracting parties have given this so-called ‘golden rule’ a constitutional ranking: Germany, Spain, Italy and Slovenia amended their Constitutions or had already done so. Others whose Constitutions did not formally include the rule included it within their hierarchy of norms, between the Constitution and ordinary laws, thereby obliging the budgetary legislator to observe it. This was done in Austria, Belgium, Estonia, Finland, Lithuania, Latvia and Portugal.111 The balanced budget rule raised controversies on its compatibility with the national Constitutions. The main arguments circled around the room of fiscal manoeuvre of national parliaments, with the ‘golden rule’, arguably curtailing their ‘budgetary sovereignty’ as guaranteed constitutionally. As a consequence, several motions for constitutional review before national review bodies were submitted.112 Ireland held a referendum authorising Irish ratification of the TSCG and inserting a new Article 29.4.10° into the Constitution.113 Spain had already amended Article 135 of its Constitution in 2011. This amendment was challenged before the Constitutional Court. Two main claims were submitted. First, it was claimed that the right to political participation was breached because the parliamentary debate had been curtailed. Second, it was claimed that the wrong amendment procedure was applied. The Constitutional Court declared the complaint inadmissible, yet it addressed the raised arguments.114 According to the Court, the changes concerned, in their substance Article 135 SC on budgetary stability. Consequently, the general procedure of Article 167 SC was qualified as correct.115 In France, it was argued that an amendment of Articles 34 and 47 of the Constitution were necessary, given an alleged modification of the division of powers between the parliament and the government in adopting budget laws. The Constitutional Council, by contrast, accepted the ‘soft’ implementation of Article 3(2) TSCG by organic law116 as a viable legal form.117 In Austria, the TSCG has a status equal to ordinary legislation, and required a simple majority in parliament. After its ratification, the debt break was inserted into the new Austrian Stability Pact – this being a State Treaty between the Federation and the provinces (Länder). Accordingly, the Federal Budget Law, laying down the general framework of federal budgeting, was modified. The Constitutional Court was seised with the claim that the TSCG should have been treated as amending the Constitution. It was contended that the TSCG debt break was a restriction of

109 Art 3(2) TSCG. 110 European Commission, COM(2017) 1201, Report presented under Article 8 TSCG in the Economic and Monetary Union. 111 European Commission, COM(2017) 1200, The Fiscal Compact: Taking Stock. 112 See on the details of the cases: Sabine Saurugger and Clément Fontan, Courts as political actors: Resistance to the EU’s new economic governance mechanisms at the domestic level (EMU Choices Working Paper 2017). 113 See for details, Gavin Barrett, ‘Ireland’ (in this volume). 114 ECLI:ES:TC:2012:9A. 115 Ibid, para 2: the defendants argued that, given the connection of the constitutional amendment proposal with the Preliminary Title and fundamental rights, the aggravated procedure of Art 168 SC should have been followed. 116 Loi organique n°2012-1403 du 17 Décembre 2012 relative à la programmation et à la gouvernance des finances publiques. 117 Décision n° 2012-653 DC du 9 août 2012, Traité sur la stabilité, la coordination et la gouvernance au sein de l’Union économique et monétaire.

The Legal Background of Member States’ Positions  25 the budgetary sovereignty of the National Council. Furthermore, the voting procedure under Article 7 TSCG118 was seen as binding the Austrian representative’s voting in the Council, which would have needed a specific constitutional basis.119 Beyond this, the legal basis120 of the parliament’s assent (by simple majority) was also challenged. The Court declared the application partly inadmissible and partly unfounded. It avoided addressing explicitly the raised challenges relying on ‘budgetary sovereignty’. Instead, it emphasised that Article 13(2) B-VG leaves ‘a considerable scope for securing the macroeconomic balance and striving for sustainable and sound finances.’121 In Belgium, the TSCG allegedly violated Article 34 of the Constitution, according to which exercising ‘specific powers can be assigned by a treaty or by a law to institutions of public international law.’ The Constitutional Court approved the Treaty but at the same time affirmed that Article 34 preserves the national identity.122 The judgment can be read as confirming the possibility of ‘identity review’ by the Court, even if that had no detrimental consequences to the case at hand. However, such review might limit further E(M)U integration. In Germany, the Constitutional Court denied the alleged infringement of the budgetary responsibility of the Bundestag. It considered the TSCG rather as preserving its budgetary autonomy than limiting it.123 This was based on the argument that the TSCG echoes terms and concepts of both the Six Pack and the German Constitution.124 Furthermore, it does not, according to the Court, empower the Commission to set up binding parameters for the German budget.125 Thus, the Court found the budgetary responsibility of the Bundestag untouched.126 The Constitutional Law Committee of Finland’s national parliament, which provides ex ante constitutional review, opined that the Fiscal Compact curtailed the budgetary powers of the ­parliament. At the same time, it emphasised that this would not amount to a significant limitation.127

ii.  Litigation Concerning the ESM Turbulence on the financial markets and the enormous increases in national debt of some eurozone Member States put the stability of the eurozone at risk. What followed was a wave of financial solidarity for Member States with solvency and liquidity problems.128 Emergency measures were adopted both at the EU and the intergovernmental levels. Starting in 2010, coordinated bilateral loans were granted to Greece by eurozone Member States jointly with the

118 According to Art 7 TSCG euro area countries commit, except in the case of qualified majority opposition, to support the Commission’s recommendations at all stages of the Excessive Deficit Procedure. 119 Art 69 para 1 B-VG: as a minister is a supreme executive authority, it cannot get instructions. In this regard, the application considered Art 7 TSCG to be a kind of instruction and therefore an infringement of Art 69 para 1 B-VG. 120 Art 9 para 2 B-VG, allowing for the transfer of enumerated powers to intergovernmental bodies. 121 ECLI:AT:VFGH:2013:SV1.2013. 122 Judgment 62/2016. 123 ECLI:DE:BVerfG:2012:rs20120912.2bvr139012, par. 120; ECLI:DE:BVerfG:2011:rs20110907.2bvr098710 para 104. 124 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012 par 243; ECLI:DE:BVerfG:2012:rs20120912.2bvr139012, paras 198ff. 125 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012, para 244. 126 Compare Stefan Korioth, Jonas Marx, ‘Germany’ (in this volume). 127 Opinions 37/2012, 34/2011 and minutes 49/2012 of the Constitutional Law Committee. 128 European Council Conclusions of 28 and 29 October 2010, Brussels. Compare, for a balanced account, Rebhahn, Solidarität in der Wirtschafts- und Währungsunion, 47ff.

26  Stefan Griller International Monetary Fund (IMF).129 Later, stability facilities, open also to other Member States, were created. These were the European Financial Stability Mechanism (EFSM),130 the European Financial Stability Facility (EFSF),131 and finally the ESM.132 These measures provoked even more controversies than the TSCG, at both the EU and the national levels. A number of constitutional review bodies, including constitutional courts, dealt with constitutional challenges of these stability programmes.133 In Germany, both the national laws allowing for bilateral loans to Greece, and the EFSF were challenged before the German Constitutional Court (GCC). The Court found these motions inadmissible, emphasising the legislature’s ‘latitude of assessment, which the Federal Constitutional Court must respect.’134 It considered the respective laws as abiding by the Bundestag’s budgetary responsibility. In essence, the Court concluded, they did not result in unforeseeable financial burden or undermine the principle of permanent budgetary autonomy.135 Subsequently, a greater number of challenges was brought against the ESM Treaty. According to the Constitutional Court, however, and despite Germany’s financial burdens resulting from the ESM, the budgetary autonomy of the German Bundestag is sufficiently safeguarded. However, arrangements under budgetary law must be made to ensure that possible capital calls pursuant to the ESM Treaty can be met fully and in time within the agreed-upon upper limits, so that a suspension of Germany’s voting rights in the ESM bodies is reliably excluded.136

This flows from the principle of democracy, with the Bundestag as the main actor that must remain in control of fundamental budgetary decisions. The GCC developed further the arguments it first presented in the Lissabon case (Treaty of Lisbon).137 It argued that the principle of democracy would be violated if Germany became liable ‘to such an extent that budgetary autonomy would not only be constrained, but would in fact cease to exist, at least for a considerable period of time’.138 Germany, according to the Court, must neither lose its de facto veto position nor forfeit its voting rights in the board of governors of the ESM.139 This reasoning advanced the doctrine of the Bundestag’s ‘overall budgetary responsibility’. According to its main feature, ‘the principle of democracy requires that the German Bundestag remains the place where autonomous decisions on revenue and expenditure are made, including those with regard to international and European liabilities.’140 This doctrine must not be misunderstood as an absolute and ultimate limit to further integration. It just presents the fostering of budgetary choices for 129 Statement of 25 March 2010 of the Heads of State or Government of the euro area and Eurogroup meeting, doc 9417/10. 130 Council Regulation (EU) 407/2010 of 11 May 2010 establishing a European financial stabilization mechanism, OJ [2010] L 118/1. 131 Decision of 10 May 2010 of the Representatives of the Governments of the Euro Area Member States Meeting within the Council of the European Union establishing the European Financial Stability Facility, doc 9610/10; EFSF Framework Agreement of 7 Jun. 2010 between the participating Member States. 132 The Treaty Establishing the European Stability Mechanism (ESM Treaty) was finally concluded on 2 February 2012. 133 The Belgian Constitutional Court found the motion inadmissible for procedural reasons: judgment n° 156/2012 (ESM). 134 ECLI:DE:BVerfG:2011:rs20110907.2bvr098710, para 132. 135 Ibid, para 135. 136 GCC Press release No. 23/2014 of 18 March 2014. 137 See above near n 82. 138 GCC Press Release No. 67/2012 of 12 September 2012, 2 BvR 1390/12- 2 BvR 1421/12- 2 BvR 1438/12- 2 BvR 1439/12- 2BvR 1440/12- 2 BvE 6/12, para 111. 139 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012, para 191 and 199. 140 Ibid, para 162. Following areas of legislation imperatively fall under the responsibilities of the Bundestag: fundamental fiscal decisions on public revenue and public expenditure, the latter being motivated, inter alia, by social policy considerations.

The Legal Background of Member States’ Positions  27 the parliament as essential.141 The temporal concept of ‘considerable period of time’ remained undefined and seemed to render a violation of the Constitution – in the case of the ESM142 – improbable, if not impossible.143 Much attention was given to the Thomas Pringle v Ireland case.144 Following the CJEU’s ruling, the Irish Court held that the ESM Treaty did not constitute an unconstitutional delegation of sovereignty in the sense of the Crotty v An Taoiseach case.145 This finding meant that the ESM did not diminish the budgetary, fiscal or economic sovereignty of Ireland, which would have required a positive referendum.146 Austria introduced new provisions into its Constitution enhancing the participation of the National Council in the ESM decision-making, as compared to EU decision-making.147 These provisions provide for information rights and above all create an obligation for the Austrian representative in the ESM board to agree to any ESM decision granting stability aid only upon the National Council’s authorisation.148 The Austrian Constitutional Court was called upon to rule on the constitutionality of Austria’s participation in the ESM.149 It decided, while pointing to the – already mentioned – existing constitutional provision on the transfer of powers to international bodies, that participation in the ESM was a political question. Austrian economic and fiscal constitutional rules, according to the Court, only marginally restricted politics.150 The actual transfer of powers to the ESM did not, according to the Court, exceed the existing limits.151 The Finnish Constitutional Law Committee examined the ESM several times in light of the parliament’s budgetary power and Finland’s sovereignty. According to the Committee’s opinion – not legally binding, but politically authoritative – Finland must, with respect to all major decisions affecting the financial liability under the ESM, preserve a veto power. Accordingly, those decisions must be taken by mutual agreement, ie unanimously, by the Board of Governors. As a result, Finland requested that the ESM emergency procedure as foreseen in the draft should be modified so that decisions affecting Members’ liability could not come under the emergency procedure. This modification removed the potential conflict with the Constitution.

141 Ibid, para 163: ‘the larger the financial amount of the liability commitments or of commitment appropriations, the more effectively structured the German Bundestag’s rights to approve and to refuse and its right to monitor must be.’ 142 This is certainly different when it comes to creating a Fiscal Union at EU level. 143 Korioth, Marx, ‘Germany’ (in this volume). 144 Compare above n 54. 145 Crotty v An Taoiseach [1987] IR 713. 146 High Court of Ireland 17.07.2012 [2012] IEHC 296 (2012 3772P). 147 Art 50a. The National Council participates in matters of the European stability mechanism. Art 50b. An Austrian representative in the European stability mechanism may only agree or abstain in voting to 1. a proposal for a resolution to grant stability aid to a member state in principle … 3. … if the National Council has authorized him to do so on the basis of a proposal of the Federal Government … Without approval by the National Council the Austrian representative must refuse the proposal for such a resolution. 148 However, due to the comparatively small share of Austria in the ESM, it may be overruled in the case of an emergency voting procedure requiring an 85% majority vote in the ESM (calculated on the percentage of shares). 149 The principal claims related to a violation of the equality protection clause, the ESM being detrimental to the objectives of ‘sustainable balanced budgets’ and of ‘thrift and efficiency’ as well as the insufficient determination of the transferred competences resulting in a violation of the principle of legality. 150 VfSlg 19.750/2013 para 57. 151 ECLI:AT:VFGH:2016:SV3.2015, VfSlg.19.750/2013 of 16 March 2013. As mentioned, Art 9(2) B-VG allows for the transfer of enumerated powers through law or through a Treaty ranked equal to ordinary legislation to other states or intergovernmental bodies.

28  Stefan Griller In addition, the Committee stressed the parliament’s right to be informed on matters of the decision-making under the ESM Treaty.152 The final version of the ESM Treaty, according to the verdict of Committee, did not include any ‘significant’ transfer of authority within the meaning of section 94 of the Constitution on international obligations.153 The Estonian Supreme Court dismissed the claim that substantial budgetary decisions could be made under the emergency voting procedure without the involvement of the Estonian parliament, as this would violate the constitutional principle of parliamentary democracy and the budgetary powers of the parliament, and thus the principles of a democratic state.154 The Court accepted the limitation on the parliamentary control powers as legitimate and proportionate. The Court found that the emergency procedure under Article 4(4) TESM, requiring 85 per cent of the votes cast, would compromise the Constitution. However, it found the compromise justified as a protection of the economic and financial sustainability of the eurozone that is at the same time seen as contained in the constitutional values of Estonia. The Dutch Council of State, a constitutionally established advisory body, issued an opinion on the ESM Treaty. It considered that financial obligations under an international agreement must be democratically legitimised. Approval of the Treaty alone might be insufficient, depending on the weight of financial obligations. If these obligations are enormous, the national parliament should be involved in the decision-making of the ESM institutions.155 The Information Protocol, presented by the Finance Minister, stipulates that the Dutch minister in the Board of Governors of the ESM will not consent to any decision on ESM aid before discussing the matter with the Lower House.156 According to a working group of the Standing Committee of the Lower House, even if this discussion obligation is a merely political arrangement, it effectively creates a veto power for the Lower House.157 In Portugal, the EMU governance measures did not directly impact on the constitutional framework as such. However, it led to a number of judicial cases invalidating the EMU-sourced Portuguese austerity measures. Several measures were invalidated arguably because they went beyond the requirements of the international (including ESM) obligations and thereby violated Portuguese fundamental rights, especially social rights.158

VI.  Concluding Remarks As already indicated,159 the relevance of national reservations against further European integration in general and EMU integration in particular is twofold.

152 Opinion 13/2012 of the Constitutional Law Committee. For an overview of the Committee’s practice regarding various measures pertaining to the euro crisis, see Päivi Leino and Janne Salminen, ‘Should the Economic and Monetary Union Be Democratic After All? Some Reflections on the Current Crisis’ (2013) 14 (7) German Law Journal 844–68. 153 Opinion 13/2012 of the Constitutional Law Committee. 154 Decision 3-4-1-6-12 on 12 July 2012 referred to by the Estonian Chancellor of Justice. 155 Opinion of the Council of State of 1 March 2012, Kamerstukken (Parliamentary Papers) 33221, 4, 5. 156 Brief van de Minister van Financiën aan de Voorzitter van de Tweede Kamer der Staten-Generaal (Letter of the Minister of Finance to the chairman of the Upper House) of 15 December 2014, Kamerstukken (Parliamentary Papers) 21501-07, no 1217. 157 Rapport van een werkgroep uit de commissie voor Rijksuitgaven van de Tweede Kamer der Staten-Generaal, ‘Aandacht voor het parlementair budgetrecht in Europees perspectief ’, annex to Kamerstukken (Parliamentary Papers) 31597, 7, 29. 158 Ana Maria Martins, Joana de Sousa Loureiro, ‘Portugal’ (in this volume). 159 See above in the text near n 31.

The Legal Background of Member States’ Positions  29 First, they limit further integration by entering into fresh Treaty obligations, be it on the basis of EU law or outside of the EU framework. Regarding EMU integration, it is specifically the further transfer of competences which is perceived critically from the perspective of national constitutional standards. Severely compromising the ‘budgetary sovereignty’ of the national parliament in some countries would easily touch upon core competences of national sovereignty. In many other countries it would even require a constitutional amendment. During the crisis no constitutional infringements were declared by the CJEU (against the yardstick of the EU constitutional order) or by national Constitutional Courts (against the yardstick of their national Constitutions). This changed sharply, however, with the GCC’s PSPP judgement in 2020, declaring the respecitve ECB decision and th CJEU’s judgement upholding it ultra vires, allegedly for encroaching on national competences. What had already been clear before this verdict with its possibly game changing force, is the overwhelming importance of the ‘national identity’ reservation and particularly the alleged violation of national parliaments’ budgetary decision-making autonomy and budgetary responsibility.160 National Constitutions guarantee such autonomy. However, the restrictions imposed by both the TSCG and the ESM had not (yet) gone far enough to render the resulting obligations unconstitutional. For the financial support mechanisms, specifically within the ESM, the review bodies partly denied admissibility of the complaints, thus, indirectly confirming the respect for constitutional limitations. Sometimes, this was combined with specifying potential limits, in particular on parliamentary autonomy. The Austrian Constitutional Court, for example, emphasised the large margin of political discretion when it comes to complex financial, monetary and economic policy assessments. The Estonian Supreme Court accepted the limitation on the parliamentary control power for the sake of the stability of the eurozone and, thus, also the stability of Estonia. The Irish Constitutional Court (after the CJEU Pringle Judgment), the Finish Constitutional Law Committee, the German Constitutional Court as well as the Dutch Council of State held that the financial assistance mechanisms remained within the limits of the constitutional safeguards of parliamentary powers. The impression might arise that several review decisions are strongly motivated by teleologically reducing the impact of the TSCG and the ESM on the national parliaments’ room for manoeuvre for shaping national budgets. By doing this, the review bodies avoided undermining the determination to strengthen the budgetary discipline throughout the eurozone and support countries in difficulties. Such undermining could have caused additional turbulence on the fi ­ nancial markets and, consequently, could have negatively affected the Member States in which these review bodies operated. Be that as it may, it must be noted that the conditions of requiring parliamentary authorisation or at least providing information with respect to all major decisions having financial consequences figure prominently in several court decisions. As regards financial stability, no concrete proposals for further limiting the budgetary autonomy of parliaments have emerged. The courts were equally generous as regards the TSCG, in order to preserve the stability of the eurozone, which was seen as endangered. As a consequence, it is fair to conclude that ‘budgetary sovereignty’ would remain relevant to any future reform scenarios and would become pertinent specifically in the context of further integration measures needed for the creation of a fiscal union. Although this scrutiny related to integration measures outside of the EU legal order, it can be assumed that the mentioned limitations would also be at stake as soon as integration within the EU legal order would be proposed. Should the steps envisaged in such future EU integration

160 In

the same vein, see also Lentsch, ‘National constitutional law as manifold steeplechase for fiscal integration’.

30  Stefan Griller deepen the transfer of budgetary powers from the national level to the EU, the same controversies are bound to surface. Second, national constitutional restrictions are considered obstacles to further integration implemented through secondary EU legislation adopted on the grounds of existing treaty obligations. As far as EU law is concerned, this comes at the same time under the scrutiny of the CJEU and of national (Constitutional) courts. This is the area where conflicts between the CJEU and the supreme national (constitutional) courts might arise. Given the many controversies on the compatibility of the envisaged reforms with primary EU law,161 but also on those performed during the last decade, it is easily predictable that any substantive reform implemented through secondary EU legislation would provoke further controversies, arguably much more than those we have been witnessing.162 This is so specifically with respect to attempts at bringing the ESM and the TSCG into the EU legal order even without any substantive deepening of the level of integration. The prediction that the PSPP-judgement of the GCC might fuel initiatives to closer scrutiny of secondary legislation does not seem to be far-fetched. Admittedly, the sheer number of legal proceedings is no proof of the legal weight of the arguments. What might be said, though, is that the legality of the path taken was and still is not beyond doubt, even retrospectively. The Constitutional Courts (and review bodies) simply exerted their peace-preserving function in that they ended the legal challenges. It is not advisable to go further down that road, which would compromise the rule of law, a fundamental principle of the EU constitution.163 The recent PSPP-judgement might be qualified as a warning signal, irrespective if the criticism of the author is chared or not. Instead of stretching the constitutional limits to the utmost, further substantive integration steps should be taken by a treaty change. This should happen even if such a change will not be easy to achieve, considering the mentioned limits to the further transfer of competences to the EU. At first sight, it might appear contradictory to go for a treaty change and at the same time acknowledge the existence of respective constitutional hurdles at the Member State level. However, two things should be considered in that regard. First, once the political decision has been taken and the respective constitutional amendment procedures have been respected, treaty changes would probably pass even the strictest scrutiny by the courts if the integration steps they take are cautious. This might even be true for the eventual scrutiny by the German Constitutional Court, which arguably imposes the strictest standards. Second, courts and judges will further develop their positions. Not everything that has been presented in the reasoning of the various judgments at national level is set in stone. The debate will continue and should be continued. A deeper debate is yet to start on fiscal federalism within the EU that would include the – economically forceful – idea distributing fiscal competences including taxation and expenditure in parallel with or at least oriented towards the distribution of substantive competences. Arguably, it might even be a requirement flowing from the principle of democracy that deciding on financial resources should be a competence for that level in the federal system in charge of performing the substantive policy. Otherwise its responsibility according to the division of competences gets blurry and compromised. This strain of argument is absent from the many controversies on ‘budgetary sovereignty’. However, it could have the potential to open a new dimension to the debate. In that dimension, the financial capacity making the EU fit to perform properly in the area of the substantive powers already transferred to the EU level – including the 161 Compare Lentsch, above n 3. 162 See above after n 54. 163 Compare for the following also Amtenbrink, above n 2, at 176f; Christian Callies, ‘The Governance Framework of the Eurozone and the Need for a Treaty Reform’ in F Fabbrini, E Hirsch Ballin and J Somsen (eds), What Form of Government for the European Union and the Eurozone? (Oxford and Portland, Hart, 2015).

The Legal Background of Member States’ Positions  31 coordination of economic policy – should become a weighty argument also at national level. The match between substantive and financial powers of the EU, which is indispensable for the EU to properly perform its tasks, could (and should) justify the transfer of additional, fiscal powers to the EU even against the yardstick of national constitutions.

References Anneli Albi and Jacques Ziller (eds), The European Constitution and National Constitutions. Ratification and beyond (Kluwer Law International, Alphen aan den Rijn, 2007). Fabian Amtenbrink, General report, in Neergard, Jacqueson and Danielsen (eds), The Economic and Monetary Union: Constitutional and Institutional Aspects of the Economic Governance within the EU, XXVI FIDE Congress in Copenhagen (DJØF Publishing, Copenhagen, 2014) 73. Gavin Barrett, ‘Ireland’ (in this volume). Armin von Bogdandy, Jürgen Bast (eds), Principles of European Constitutional Law (Hart Publishers/Beck, Oxford/Munich, 2010). Christian Callies, ‘The Governance Framework of the Eurozone and the Need for a Treaty Reform’, in Fabbrini, Hirsch Ballin and Somsen (eds), What Form of Government for the European Union and the Eurozone? (Hart Publishers, Oxford and Portland, Hart, 2015). Cédric Chapuis, Die Übertragung von Hoheitsrechten auf supranationale Organisationen (Helbing & Lichtenhahn, Basel/Frankfurt, 1993). Monica Claes, The National Courts’ Mandate in the European Constitution (Hart Publishers, Oxford and Portland, 2006). Monica Claes, ‘Negotiating Constitutional Identity or Whose Identity Is It Anyway?’, in Monica Claes, Maartje de Visser, Patricia Popelier and Catherine Van de Heyning (eds), Constitutional Conversations in Europe (Intersentia, Cambridge/Antwerp, 2012) 205. Monica Claes, Maartje de Visser, Patricia Popelier and Catherine Van de Heyning (eds), Constitutional Conversations in Europe (Intersentia, Cambridge/Antwerp, 2012). Paul Craig, ‘The Stability, Coordination and Governance Treaty: Principle, Politics and Pragmatism’ (2012) ELRev 231. Paul Craig, ‘Pringle and Use of EU Institutions outside the EU Legal Framework: Foundations, Procedure and Substance’ (2013) 9 European Constitutional Law Review 263. Paul Craig, ‘Pringle: Legal Reasoning, Text, Purpose and Teleology’ (2013) 1 Maastricht Journal 1. Paul Craig and Gráinne de Búrca, EU Law, 6th edn (Oxford University Press, Oxford, 2015). Bruno De Witte, ‘Direct Effect, Supremacy and the Nature of the Legal Order’, in Paul Craig and Gráinne de Búrca (eds), The Evolution of EU Law (Oxford University Press, Oxford, 1999) 177–213. Bruno De Witte and Thomas Beukers, ‘The Court of Justice approves the creation of the European Stability Mechanism outside the EU legal order: Pringle’ (2013) 50 Common Market Law Review 806–48. European Parliament, Policy Department C: Citizens’ Rights and Constitutional Affairs (ed), National Constitutional Law and European Integration, Study PE 432.750 (European Parliament, Brussels, 2011). European Parliament, Policy Department C: Citizens’ Rights and Constitutional Affairs (ed), National Constitutional Avenues for further EU Integration, Study PE 493.046 (European Parliament, Brussels, 2014). Federico Fabbrini/András Sajó, The dangers of constitutional identity, Eur Law J 2019, 1–17. Christoph Grabenwarter, ‘National Constitutional Law Relating to the European Union’, in Armin von Bogdandy and Jürgen Bast (eds), Principles of European Constitutional Law (Hart Publishers/Beck, Oxford/Munich, 2010) 83. Stefan Griller, ‘Is this a Constitution? Remarks on a Contested Concept’, in Griller and Ziller (eds), The Lisbon Treaty. EU Constitutionalism without a Constitutional Treaty? (Springer, Vienna/New York, 2008) 21–56. Stefan Griller, ‘Executive Summary’, in European Parliament, Policy Department C: Citizens’ Rights and Constitutional Affairs (ed), National Constitutional Law and European Integration, Study PE 432.750 (European Parliament, Brussels, 2011) 11. Stefan Griller, ‘Fragmentierungen im Öffentlichen Recht: Diskursvergleich im internationalen und nationalen Recht’, 77 VVDStRL (de Gruyter, Berlin, 2018) 237.

32  Stefan Griller Stefan Griller, Franz Maislinger and Andreas Reindl, Fundamentale Rechtsgrundlagen einer EG-Mitgliedschaft. Verfassungsfragen der Übernahme von EG-Recht in den bisherigen Mitgliedstaaten in vergleichender Sicht (Verlag der Österreichischen Staatsdruckerei, Vienna, 1991). Ulrich Häde, ‘Die Finanzordnung der Europäischen Union’, in Hatje and Müller-Graff (eds), Europäisches Organisations- und Verfassungsrecht, Enzyklopädie Europarecht I (Nomos, Baden-Baden, 2014) 795 (§ 14). R. Daniel Kelemen, ‘On the Unsustainability of Constitutional Pluralism: European Supremacy and the Survival of the Eurozone’, 23 Maastricht Journal of European and Comparative Law 2016, 136–50. Alfred Kellermann, de Zwaan J and Czuczai J (eds), EU Enlargement – The Constitutional Impact at EU and National Level (TMC Asser Press, The Hague, 2001). Jean-Paul Kepenne, ‘Institutional report’, in Neergard, Jacqueson, Danielsen (eds), The Economic and Monetary Union: Constitutional and Institutional Aspects of the Economic Governance within the EU, XXVI FIDE Congress in Copenhagen (DJØF Publishing, Copenhagen, 2014) 179. Uwe Kischel, ‘Fragmentierungen im Öffentlichen Recht: Diskursvergleich im internationalen und nationalen Recht’, 77 VVDStRL (de Gruyter, Berlin, 2018) 285. Marcus Klamert, The Principle of Loyalty in EU Law (Oxford University Press, Oxford, 2014). Koen Lenaerts and Piet van Nuffel, Constitutional Law of the European Union (Sweet & Maxwell, London, 2011). Elisabeth Lentsch, ‘National constitutional law as manifold steeplechase for fiscal integration’, in S Puntscher Riekmann, F Wasserfallen and Z Kudrna (eds), The Politics of Reforming the Economic and Monetary Union (ECPR Press, London, 2020) (forthcoming). Elisabeth Lentsch, ‘EMU Integration against the backdrop of EU law and CJEU jurisprudence’ (in this volume). Franz Mayer and Mattias Wendel, ‘Die verfassungsrechtlichen Grundlagen des Europarechts’, in Hatje and Müller-Graff (eds), Europäisches Organisations- und Verfassungsrecht, Enzyklopädie Europarecht I (Nomos, Baden-Baden, 2014) 163 (§ 4). Gregorio Merino, ‘Legal developments in the economic and monetary union during the debt crisis: The Mechanisms of Financial Assistance’ (2012) 49 Common Market Law Review 1613–46. Christoph Ohler, ‘Art 125 AEUV’, in Siekmann (ed), EWU. Kommentar zur Europäischen Währungsunion (Mohr Siebeck, Tübingen, 2013). Rainer Palmstorfer, ‘To Bail Out or not to Bail Out? The Current Framework of Financial Assistance for Euro Area Member States Measured against the Requirements of EU Primary Law’ (2012) 37 ELRev 771. Clara Rauchegger, ‘National constitutional rights and the primacy of EU law: M.A.S.’ (2018) 55 Common Market Law Review 1521. Robert Rebhahn, Solidarität in der Wirtschafts- und Währungsunion (Nomos, Baden-Baden, 2015). René Repasi, ‘Das Binnenmarktrecht der Wirtschaftsrisiken’, in Müller-Graff (ed), Europäisches Wirtschaftsordnungsrecht, Enzyklopädie Europarecht IV (Nomos, Baden-Baden, 2015) 1695. Sabine Saurugger and Clément Fontan, Courts as political actors: Resistance to the EU’s new economic governance mechanisms at the domestic level (EMU Choices Working Paper, 2017). Anne-Marie Slaughter, Alex Stone Sweet and Joseph HH Weiler (eds), The European Courts and National Courts/Doctrine and Jurisprudence. Legal Change in Its Social Context (Hart Publishers, Oxford, 1998). Takis Tridimas, The General Principles of EU Law, 2nd edn, (Oxfort University Press, (Oxford, 2006). Jacques Ziller, Il nuovo Trattato europeo (Il Mulino, Bologna, 2007).

2 EMU Integration against the Backdrop of EU Law and Jurisprudence ELISABETH LENTSCH

Abstract: The EU’s economic governance system, as laid down by the Treaty of Maastricht, was subject to extensive changes, particularly during and after the euro crisis. The limited legal foundations were stretched to their utmost limits, resulting in watering down, mutation or even circumvention of existing EU Treaty limits. Furthermore, the measures adopted within and outside of the legal framework impacted strongly on the national legal frameworks and the tools of preference formation in the field. While consensus on the necessity of the EMU reforms has been manifest in various studies and reports for some time, a detailed legislative initiative package was presented only recently. Notably, however, instead of addressing the rigidity of the EU Treaties, which would admittedly require a burdensome Treaty reform, the proposals follow a pattern of avoiding substantive Treaty reforms.

I. Introduction The establishment of the internal market in the European Union connected the EU Member States economically and helped build the political will for them to take a further step in European integration.1 The then 12 Member States decided to create an economic and monetary union (EMU). The Member States aimed at creating a common monetary policy tied to a single common currency at the EU level, leaving economic and fiscal policies largely in their competences. Over the past 20 years, the EU economic governance framework developed significantly, particularly during and after the euro crisis. The financial and debt crisis seriously affected the economies of some Member States. Due to the high level of economic integration achieved through monetary union, the other Member States’ economies were also threatened. This growing pressure on the stability of the Member States and the eurozone as such rendered possible certain broad and swift reforms. These involved the strengthening of the rules governing the Member States’ fiscal discipline and economic policy coordination, the establishment of financial market supervisory mechanisms, a Banking Union, and emergency financial assistance tools.

1 Progressive stages: Free Trade Area, Customs Union, Common Market, Monetary Union, Economic Union, Political Union, see Rosa Maria Lastra, Legal foundations of international monetary stability (Oxford, Oxford University Press, 2006) 196–203.

34  Elisabeth Lentsch These novelties led to substantial changes and implied shifts in the EMU’s institutional set-up. The measures adopted during the crisis impacted strongly the existing national fiscal systems and laws and introduced various new aspects, such as national fiscal councils or reinforced fiscal discipline rules.2 The clear lack of a robust and resilient framework of the eurozone led to various initiatives and proposals seeking to ensure the functionality of the EMU system. The EU institutions put great efforts in initiating the debate on further EMU development. General ideas and roadmaps dominated the official reports and communications for a long time, and detailed legislative proposals on the next steps appeared only recently.

II.  The EMU in the Course of Time The decision to create an EMU was based on the objective to promote throughout the Community a harmonious and balanced development of economic activities, sustainable and non-inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States.3

An ‘ever closer union’ was meant to be achieved by the unifying force of a monetary union and a common currency.4 Accordingly, the monetary policy was transferred to the supranational level. Competence for economic and fiscal policies remained largely that of the Member States. Nevertheless, their convergence was emphasised as being essential for a functioning monetary union.5 A set of convergence criteria had to be fulfilled before entering the eurozone.6 Furthermore, certain deficit and debt limits and a respective monitoring procedure were specified in the Treaties. The Member States agreed also on Treaty rules obliging them to pursue their economic and fiscal policies in the ‘common interest’.7 This should be achieved by coordinating these policies through recommendations and guidelines at the supranational level and introducing a respective surveillance procedure based on peer pressure from the other Member States and recommendations.

A.  Monetary Union and Respective Competences The European Central Bank (ECB) was established as the central EU institution to operationalise the common monetary policy. Since the formation of the eurozone on 1 January 1999, 2 Exemplary is Italy, where the Internal Stability Pact, which reinforces the Stability and Growth Pact impacted strongly on the financial autonomy of Italian regional and local bodies, bringing increased centralisation at national level to ensure that every regional and local Government respects the SGP constraints. See respective chapters in this volume. 3 Art 2 TEC Consolidated Version of the Treaty establishing the European Community of Maastricht, [1992] OJ C224/1. 4 For an overview on the historical background and development of monetary cooperation and integration, see Lastra, Legal foundations of international monetary stability, 177ff. 5 This stems from the previous discussions between the supporters of the economist and the monetarist schools. While the economists considered convergence of national economies a necessary condition for establishing functioning monetary union (Coronation strategy – Germany), the monetarists believed that a common currency would put pressure on Member States to achieve economic convergence (Locomotive strategy – France). 6 Art 140 TFEU and Protocol (no 13) on convergence criteria covering price stability, sound public finances, sustainable public finances, durability of convergence, exchange rate stability, adaption of national laws. 7 Art 121 TFEU.

EMU Integration against the Backdrop of EU Law and Jurisprudence  35 responsibility for the internal monetary policy of the eurozone, which covers interest, credit and currency policies, was transferred to the ECB and the national central banks of the eurozone Member States – the Eurosystem. The decisions on the monetary policy of the eurozone are taken by the ECB Governing Council, comprising the governors of the national central banks of the eurozone Member States and the members of the ECB’s Executive Board.8 The EU Treaties determine the prime objective of the Eurosystem, which is price stability and the tasks and instruments available to achieve it.9 The ECB is charged with the sustainable and effective achievement of this principal objective and enjoys full independence from any national or European governmental authorities in the exercise of its powers.10 The ECB is also empowered to support the general economic policies of the EU, as long as price stability is not affected.11 This strict separation of monetary and economic policies in the Treaties was put to the test during the crisis. The missing common economic and fiscal policies at EU level made the Eurosystem a powerful and decisive factor in solving the crisis. One essential policy action related to persistently cutting interest rate. The announcement and implementation of a set of so-called non-standard monetary policy measures was legally more controversial, but had a spectacularly calming effect on the markets.12 In essence, the ECB increased its refinancing operations for financial institutions to keep the financial sector functioning.13 These tools covered increased and emergency liquidity assistance to financial institutions. In addition, the Eurosystem started purchasing government bonds of troubled eurozone Member States with ECB money. With its first Securities Markets Programme14 the Eurosystem became a creditor of some Member States, purchasing their sovereign bonds and thereby influenced their solvency.15 The announced Outright Monetary Transaction (OMT) Programme16 allows the purchase of unlimited amounts of government bonds by the Eurosystem.17 The Public Sector Purchase Programme, as the so-called Quantitative Easing, foresees the purchase of high amounts of public sector assets with risksharing arrangement of 20 per cent among the national central banks and 80 per cent among the Member State in question, in proportion to its share in ECB capital.18 Undisputedly, the effect of such measures supporting the general economic policies in the EU results from the impossibility of a full disconnection between monetary policy and economic policy. According to Article 127 TFEU, the Eurosystem shall support the general economic policies in the EU. In its Gauweiler

8 Arts 129, 282(1) TFEU, Art 12.1 on the Statute of the European System of Central Banks and of the European Central Bank (ESCB Statute). 9 Arts 127, 130, 282(3) TFEU and Art 3.1 ESCB Statute. European Central Bank, ECB Monthly Bulletin (1999) 39. The ECB Governing Council itself specified price stability as control of the inflation, which is achieved by a year-on-year increase in the Harmonised Index of Consumer Prices of below, but close to, 2%. See Ch IV of Protocol (no 4) on the Statute of the European System of Central Banks and of the European Central Bank. While Art 127 TFEU lists the basic tasks of the ECB the specific instruments to be used are defined in Arts 18 to 20 of the ESCB Statute. 10 Arts 130, 282(3) TFEU and Art 7 ESCB Statute, CJEU Case C-11/00 Olaf [2003] ECR 1-07147, paras 130–35; for details see Chiara Zilioli, Martin Selmayer, ‘The European Central Bank: An independent specialised organization of Community Law’ (2000) 37 CMLR, 591–644. 11 Art 127(1) 2nd sentence TFEU. 12 Philippine Cour-Thimann, Bernhard Winkler, The ECB’s non-standard monetary policy measures. The role of institutional factors and financial structure (2013) 1528 ECB Working Paper Series. 13 Klaus Tuori, ‘Is Euro area Monetary Policy a Hidden Transfer Mechanism?’ (2016) ELJ, 838–68, 847f. 14 ECB Decision 2010/281/EU of 14 May 2010 establishing a securities markets programme (ECB/2010/5) OJ L124/8. 15 Tuori, ‘Is Euro area Monetary Policy a Hidden Transfer Mechanism?’, 857f. 16 European Central Bank, Technical features of outright monetary transactions (2012) available at www.ecb.europa.eu/ press/pr/date/2012/html. 17 Tuori, ‘Is Euro area Monetary Policy a Hidden Transfer Mechanism?’, 860f. 18 European Central Bank, Decision 2015/774 on a secondary markets public sector asset purchase programme (ECB/2015/10) (2015).

36  Elisabeth Lentsch preliminary ruling, the Court of Justice of the European Union (CJEU) approved the OMT as a legitimate instrument, in the form of securities purchases, and considered it necessary to achieve the Eurosystem’s monetary policy objective of price stability, while accepting its side-effects on the fiscal and economic policy fields.19 This reasoning paved the way for subsequent ECB measures in the field as shown in the Weiss case.20 The CJEU was similarly seised with questions on the scope of intervention in the market forces when the ECB introduced and announced a set of so-called ‘non-standard monetary policy measures’. In particular, the OMT scheme was challenged for violating Article 123 TFEU. That provision prohibits the ECB and national central banks from financing the Member States’ budgets. In the Gauweiler case, the CJEU considered that the OMT scheme, which consisted of bond purchases on the secondary market, complied with Article 123(1) TFEU.21 It ruled that the safeguards attached to the scheme ensure that the announced bond purchases are not similar to primary market intervention, and thus market discipline is preserved. These safeguards relate to the ECB Governing Council’s decision on the scope, start, continuation and suspension of the purchases, a minimum period between the bond issuance and purchase and the abstaining any prior announcements.22 Furthermore, the CJEU considered that the link to the adjustment programmes under the European Stability Mechanism, as a condition for the government purchase, is sufficient to ensure that the budgetary discipline under Article 123 TFEU is upheld.23

B.  Economic (and Fiscal) Union and Respective Competences The Member States were neither ready nor willing to transfer their sovereignty in the field of economic and fiscal policy to the supranational level. Joining the eurozone required only the achievement of a certain degree of economic convergence among the Member States.24 The Maastricht criteria determined the sustainability of public finances to be a necessary requirement for joining the eurozone.25 In that regard, the Member States are obliged to have sound budgets. The EU Treaties seek to ensure that sustainability and soundness by prohibiting monetary financing by the ECB and national central banks or the bail-out of Member States.26 The Commission and the Council monitor the observance of these prohibitions through a detailed procedure that is outlined in the Treaties.27 Furthermore, the Member States shall conduct their economic policies as a matter of common concern.28 The Council also has a coordinating role by formulating common objectives in the form of broad guidelines based on an 19 CJEU, Case C-62/14 Gauweiler, ECLI:EU:C:2015:400. 20 CJEU, Case C-493/17 Weiss, ECLI:EU:C:2018:1000. 21 CJEU, Case C-62/14 Gauweiler, para 95. 22 Ibid, paras 104–08. 23 Ibid, para 120. 24 Committee for Study of Economic and Monetary Union, Chair Jacques Delors, Report on economic and monetary union in the European Community (1989), 13, para 16: for the functioning of the single currency, ‘a high degree of compatibility of economic policies and consistency in a number of other policy areas, particularly in the fiscal field’ are essential. 25 Art 140(1) TFEU. 26 Kai Hentschelmann, ‘Finanzhilfen im Lichte der No Bailout-Klausel – Eigenverantwortung und Solidarität in der Währungsunion’ (2011) EuR 282–312, 284; Christoph Ohler, ‘Artikel 125’ in H Siekmann, F Becker (eds), Kommentar zur europäischen Währungsunion, Europäische Währungsunion (Tübingen, Mohr Siebeck, 2013) para 3; Michael Ioannidis, ‘Europe’s new Transformations: How the EU economic constitution changed during the Eurozone crisis’ (2016) CMLR, 1237–82, 1249. 27 Art 126 TFEU. 28 Art 121 (1) TFEU.

EMU Integration against the Backdrop of EU Law and Jurisprudence  37 exchange of information and a mutual consultation.29 The specific modes and framework for the coordination of economic and fiscal policies are captured in the Treaties30 and in secondary legislation under the so-called Stability and Growth Pact (SGP).31

i.  Legal and Institutional Changes a)  Fiscal Discipline The economic and fiscal Treaty rules and in particular the SGP proved unable to prevent national fiscal deficits and debts rising during the economic and financial crisis. Being ultimately adopted and imposed by the Council, these rules still do not provide for a credible mechanism to enforce fiscal discipline on the Member States. While the 2003 economic downturns in Germany and France led to the introduction of more flexibility in the Maastricht limits in 2005,32 the crisis management measures covered in the SGP Six Pack and Two Pack reforms of 201133 and 201334 strengthened the central coordination and surveillance tools over national economic and fiscal policies. The coordination and supervision at supranational level was streamlined and evolved into a complex legal framework involving supervision, coordination and possible sanctions of the national economic and fiscal policies.35 That framework includes the European Semester, new macroeconomic imbalance procedures, new sanction mechanisms and voting modalities and fiscal discipline rules and financial solidarity mechanisms. The European Semester brought a common budgetary timeline and planning cycle to which the Member States aligned their national fiscal frameworks.36 They amended, and some even 29 Arts 2 (3), Art 5 (1) TFEU. Peter Becker, ‘Wirtschaftspolitische Koordinierung in der Europäischen Union’ (2004) SWP-Studie, 19. 30 Arts 119, 120 TFEU. 31 Resolution of the European Council on the Stability and Growth Pact; Council Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies [1997] OJ L209/1; Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure [1997] OJ L209/6. 32 Regulation (EC) No 1055/2005 of 27 June 2005 on strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies, [2005] OJ L174/1; Council Regulation (EC) No 1056/2005 of 27 June 2005 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure, [2005] OJ L174/5. 33 Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States, [2011] OJ L306/41; Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November 2011 on the effective enforcement of budgetary surveillance in the euro area [2011] OJ L306/1; Regulation (EU) No 1174/2011 of the European Parliament and of the Council of 16 November 2011 on enforcement measures to correct excessive macroeconomic imbalances in the euro area [2011] OJ L306/8; Regulation (EU) No 1175/2011 of the European Parliament and of the Council of 16 November 2011 amending Regulation 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies [2011] OJ L306/11; Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances [2011] OJ L306/25; Regulation (EU) No 1177/2011 of the European Parliament and of the Council of 8 November 2011 amending Regulation 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure [2011] OJ L306/33. 34 Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area [2013] OJ L140/1; Regulation (EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability [2013] OJ L140/11. 35 See Elisabeth Lentsch, Report on the institutional consequences of fiscal and economic integration measures, 2017 available at www.emuchoices.eu. 36 Art 2a Regulation (EU) No 1175/2011: comprehensive economic and fiscal policy planning cycle including the formulation and surveillance of economic policy and employment guidelines, the convergence programmes, national reform programmes, and prevention and correction of macroeconomic imbalances.

38  Elisabeth Lentsch completely redrafted, their budgetary rules and minimum standards on the quality of statistical data and economic forecasts as well as independent fiscal bodies.37 The latter function as watchdogs with respect to actions and decisions of governments having fiscal consequences. Thereby, they may support the national parliamentary control over the executive branch in the fiscal field.38 The eurozone Member States even have to give detailed insights into their national ­budgetary plans to the Commission, which monitors them and may even ask for their revision.39 Furthermore, a country-specific expenditure benchmark was introduced, which is linked to the country-specific medium-term budgetary objective and limits the annual growth rate of expenditure.40 The Commission also has the power to conduct surveillance missions directly in the Member States and may issue warnings in case of significant deviation from a devised adjustment path and even publish its findings.41 It could trigger a warning by the Council to a Member State. If the Council fails to act a subsequent Commission recommendation will be deemed as adopted, unless it is rejected by a majority in the Council, the so-called reverse majority voting (RMV).42 This decision-making modality, which was introduced by secondary legislation, is not covered by the Treaties and thus is not compatible with primary law.43 Furthermore, for the purpose of enhancing compliance with the adopted recommendations, the Council may adopt through the RMV procedure the obligation for the respective Member State to provide an interest-bearing deposit of 0.2 per cent of GDP in the case of repeated non-compliance.44 A newly established monitoring procedure focuses on identifying and addressing potential risks of macroeconomic imbalances at an early stage.45 The Commission defines a scoreboard of internal and external imbalances, scrutinises competitiveness, asset markets, and internal and external debts, and monitors the macroeconomic developments in the Member States.46 If an imbalance is identified,47 the Council may adopt after a Commission recommendation a preventive recommendation under Article 121 (2) TFEU. That recommendation is later included in the country-specific European Semester recommendation.48 If excessive imbalances49 occur, the

37 Directive 2011/85/EU. 38 Cristina Fasone, Diane Fromage, ‘Fiscal Councils: Threat or Opportunity for Democracy in the Post-Crisis Economic and Monetary Union?’ in L Daniele, P-L Simone, R Cisotta (eds), Democracy in the EMU in the Aftermath of the Crisis (Heidelberg, Springer, 2017) 161–78. 39 Arts 6, 7 Regulation (EU) No 473/2013. 40 Art 3 (2) Regulation (EU) No 1175/2011 – Expenditure net of discretion measures should grow ≤ medium-term potential GDP. 41 Art 11 ibid, including on-site monitoring, eventual publication of findings. Commission may issue warning in case of significant deviation from adjustment path. 42 Arts 6 (2), 10 (2) Regulation (EU) No 1175/2011. 43 On the legality of this instrument see Rainer Palmstorfer, ‘The Reverse Majority Voting under the “Six Pack”: A Bad Turn for the Union?’ (2014) 20(2) ELJ, 164–85, 186; Hannes Rathke, ‘“Umgekehrte Abstimmung” in der Fiskalunion: neue Stabilitätskultur oder halbautomatischer Vertragsbruch?’ (2012) Die Öffentliche Verwaltung, 751–65, 751. 44 Art 4 Regulation (EU) No 1173/2011. 45 Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances. 46 Art 4 ibid. 47 Art 2 (1) ibid: ‘imbalance’ means any trend giving rise to macroeconomic developments which are adversely affecting, or have the potential adversely to affect, the proper functioning of the economy of a Member State or of the economic and monetary union, or of the Union as a whole. 48 Art 6 (1) ibid: Accordingly, the Commission analyses the national macroeconomic positions based on a set of economic and financial indicators (so-called scoreboard). The Commission and the Council may adopt recommendations (in line with Art 121 (4) TFEU), which are included in the country-specific recommendations, issued in the European Semester. 49 Art 2 (2) ibid: ‘excessive imbalances’ means severe imbalances, including imbalances that jeopardise or risks jeopardising the proper functioning of the economic and monetary union.

EMU Integration against the Backdrop of EU Law and Jurisprudence  39 Member State concerned is required to submit a corrective action plan with a clear roadmap and deadlines for implementing corrective action, which is monitored by the Commission.50 For eurozone countries, in the event of ignoring the recommended corrective action an enforcement regime is established in the form of a fine of 0.1 per cent of GDP, which is adopted thorough the RMV procedure.51 It must be noted that legally under the EU Treaties multilateral surveillance procedure the Council serves as a forum for discussing and defining common economic guidelines. Compliance with these guidelines is based on reporting mechanisms, peer review and recommendations that are not legally enforceable.52 Certainly, the newly introduced obligations for the Member States, in particular the increased reporting obligations on the national budgets and economic policies affect their national autonomy in the fiscal policy field. However, they remain within the legal limits, as they provide no binding intrusive rights to the Commission.53 Nevertheless, the new sanction regime for the excessive macroeconomic imbalance procedure,54 being part of the multilateral surveillance procedure, is not covered by the EU Treaties. The Treaties allow only for peer pressure in the form of publication of recommendations as maximal reaction.55 Further legislative changes concerned the rules on numerical limits on Member States’ national debts and budget deficits.56 The lack of effective application of the Excessive Deficit Procedure (EDP) as determined in the Treaties was brought to court by the Commission in the cases of France and Germany in 2002 and 2003. Both countries exceeded the 3 per cent limit for at least two consecutive years, without the prospect of respect of the rule for the third year. The Commission called upon the CJEU to rule on the Council’s failure to adopt a Commission’s recommendation to give notice to them to take measures to reduce their deficits. The actual Council conclusions in the procedure, which were taken instead, declaring the procedure to be held in abeyance until the self-commitment of the two Member States in the conclusions, were broken. The Court’s judgment in Case C-27/04 did not touch on the questions of content but clarified the interpretation of the procedural rules for reacting to excessive deficits.57 The subsequent reforms of the SGP in 2005 brought more flexibility in addressing Member States’ excessive deficits by granting greater discretion to them.58 Only in 2011, in the turmoil of the euro crisis, were the rules on fiscal discipline and the concomitant rules on the EDP strongly enhanced.59 This concerned the option to open an EDP with respect to the debt criterion,60

50 Art 9 ibid. 51 Art 3 Regulation (EU) No 1174/2011. 52 Art 288 TFEU. See Fabian Amtenbrink and Jakob Haan, ‘Economic governance in the European Union’ (2003) 40(5) CMLR, 1075. 53 See Alicia Hinarejos, The euro area crisis in constitutional perspective (Oxford, Oxford University Press, 2015) 32. 54 Art 3 Regulation (EU) No 1174/2011 on enforcement measures to correct excessive macroeconomic imbalances in the euro area: the Council may impose an interest-bearing deposit or fine by reversed qualified majority voting of up to 0.1% GDP, in the event that the Member State concerned has not taken the corrective action recommended by the Council. 55 See Art 121 (4) TFEU. 56 Art 1 Protocol (no 12) on the Excessive Deficit Procedure. The deficits are defined as net borrowing, exceeding 3% for the ratio of planned or actual government deficit to GDP at market prices, and the total gross debt at nominal value at the end of the year exceeding 60% for the ratio of government debt to GDP at market prices per year. 57 CJEU, Case C-27/04 Commission v Council, ECLI:EU:C:2004:436. 58 Council Regulation (EC) No 1056/2005 of 27 June 2005 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure [2005] OJ L174. 59 Conclusions of the European Council, 9 December 2011, Brussels. 60 Art 1 Council Regulation (EU) No 1177/2011 of 8 November 2011 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure.

40  Elisabeth Lentsch the determination of the cases for exception,61 the shortening of procedural time limits,62 and increased dialogue between the Commission and the national authorities as well as missions on site.63 Such enhanced surveillance and obligations of the economic and fiscal policies of the Member States has considerable effect on the national autonomy in the economic and fiscal policy field. The SGP reforms introduced mechanisms for increased economic dialogue with the ­parliaments. Thereby, the parliaments are invited to contribute to the discussions on economic policy issues and measures with the Council and the Eurogroup.64 It provides a platform for debate and exchanges on economic governance and budgetary policy in the EU and contributes to the democratic accountability of EMU matters. Such involvement, however, remains on a purely voluntary and informative basis. The tool of dialogue remains a soft instrument of accountability check and suffers from the diversities of national parliaments’ competences with regard to EU matters. Most important was the enhancement of the enforcement mechanism within the EDP for eurozone Member States. It was enhanced through stricter and more precise provisions as well as new sanction mechanisms. Relevant in that regard is the special feature of the EMU and the respective supranational mechanisms. All decisions on the budgetary situation of the Member States must be taken by the Council, which holds broad discretion in each procedural step allowing for political compromise. Financial penalties as a last resort for delinquent eurozone countries in the EDP may only be adopted at the end of a lengthy procedure. Consequently, sanctions were not yet applied. The reforms in reaction to the euro crisis addressed this feature at various levels. The Council’s political discretion and blocking options were confronted by the introduction of the comply-or-explain tool. Accordingly, the Council must follow the proposal of the Commission or explain its position publicly.65 Further automation of the EDP decisionmaking was introduced through the RMV procedure.66 A pecuniary sanctioning mechanism applied even to decisions on the existence of an excessive deficit.67 Again, this move exceeded the underlying competence under Treaty law, which does not foresee sanctions at the early stage of the procedure. Thus, it is contrary to primary law rules. All in all, the Treaties strongly limit enforcement of the rules on economic policy coordination and correction of excessive deficits, which is the reason for the lack of implementation. The euro crisis brought far-reaching legal rules to reinforce the existing economic governance mechanisms. These measures, however, partly overstepped the primary law rules. Increased fiscal discipline in the Member States was introduced by reinforcing the established budgetary rules and the respective anchoring into national law and adopting the

61 Art 2 (1a) ibid. Accordingly, the debt GDP ratio is sufficiently diminishing if the differential to 60% has decreased over the previous three years at an average rate of 1/20 per year as a benchmark, or will occur during the next three years. 62 Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November 2011 on the effective enforcement of budgetary surveillance in the euro area [2011] OJ L306: non-interest-bearing deposit can be converted into a fine in the event of non-compliance with the recommendation to correct the excessive deficit. 63 Art 10a Regulation (EU) No 1176/2011. 64 Regulation (EU) No 1175/2011; Regulation (EU) No 472/2013, Art 13 TSCG. 65 Art 2-ab (2) Regulation (EU) No 1175/2011. 66 Applicable in the cases of Arts 4–6 Regulation (EU) No 1173/2011; Arts 3 (3),(4) Regulation (EU) No 1174/2011; Arts 6, 10; Regulation (EU) No 1175/2011; Art 10(4) Reg 1176/2011; Art 7 TSCG: requires that Member States support the Commission’s proposal unless there is qualified majority opposition. 67 Arts 5–6 of Regulation (EU) No 1173/2011: a non-interest-bearing deposit amounting to 0.2% of its GDP would apply upon a decision to place a country in excessive deficit and be converted into a fine in the event of non-compliance with the recommendation to correct the excessive deficit.

EMU Integration against the Backdrop of EU Law and Jurisprudence  41 intergovernmental Treaty on Stability, Coordination and Governance (TSCG).68 TSCG’s core, the so-called Fiscal Compact, obliges the signatory states to incorporate balanced budget rules into their legal orders.69 Furthermore, these rules should be permanent, have binding force, and preferably be of constitutional character.70 The TSCG extended the RMV procedure to decisions on the existence of an excessive deficit in a eurozone Member State. Thus, it departed from the voting modalities in the EU Treaties.71 Member States in an EDP are required to submit for Council and Commission approval budgetary and economic partnership programmes, which outline details of structural reforms aiming at an effective and durable correction of the excessive deficit.72 All participating Member States implemented the TSCG.73 However, for partly political and partly constitutional reasons, only a few Member States actually included the balanced budget rule as a ‘golden rule’ in constitutional rank. This is the case for Germany, Spain, Italy and Slovenia. Only the latter introduced the golden rule to comply specifically with the TSCG. The others already had such a rule in their Constitutions. Other Member States, such as Estonia, Finland, Lithuania, Latvia and Portugal, accorded the rule a higher hierarchical status than ordinary law.74 In most Member States the balanced budget rule did not raise any legal or constitutional concerns and in some Member States it was already covered by their budgetary laws. In others the TSCG’s adoption and implementation, in particular the balanced budget rule, raised important legal questions and created constitutional controversies, evident from several motions for constitutional review submitted before national review bodies.75 The main arguments concerned the respective restriction of the fiscal room to manoeuvre of national parliaments, arguably curtailing their budgetary sovereignty as guaranteed in the national Constitutions. The respective rulings led to further declarations on and interpretation of the budgetary prerogatives of national parliaments.76 b)  Financial Assistance When faced with the crisis, the distrust in the financial markets of several countries due to their inability to service their debts resulted in a sudden surge in interest rates on these 68 Due to the UK’s veto position and the political commitment for adoption of a Treaty, 25 Member States went for the intergovernmental route. See Paul Craig, ‘The Stability, Coordination and Governance Treaty: principle, politics and pragmatism’ (2012) 37 ELR, 231–48, 233. 69 Art 3 (2) TSCG is geared towards stricter supranational budgetary limitations than those covered under the EU Six Pack legislation in Art 2a Council Regulation (EC) No 1466/1997 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies [1997] OJ L209/1. 70 Art 3 (2) TSCG. This allowed several signatories to avoid referendums, which would have been required, where necessary to amend the national constitution. 71 Art 7 TSCG. On its conformity with EU law: Fabian Amtenbrink and René Repasi ‘Compliance and Enforcement in Economic Policy Coordination in EMU’ in A Jakab and D Kochenov (eds), The enforcement of EU law and values: Ensuring member states’ compliance (Oxford, Oxford University Press 2017), 163. However, as the TSCG may not modify the existing voting rules set out in the Treaties (Art 126 TFEU in conjunction with Art 16 (3) TEU), this may only have political rather than legal effect. 72 Art 5 (1) TSCG under the procedural step of Art 126(7) TFEU. 73 European Commission, C(2017) 1201, Report presented under Art 8 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. 74 European Commission, C(2017) 1200, Communication on the Fiscal Compact: Taking Stock. 75 See on the details of the cases: Sabine Saurugger, Clément Fontan, ‘Courts as political actors: Resistance to the EU’s new economic governance mechanisms at the domestic level’, Halshs-01628964, 2017. 76 See Elisabeth Lentsch, ‘National constitutional law as manifold steeplechase for fiscal integration’, forthcoming in S Puntscher-Riekmann, Z Kudrna and F Wasserfallen (eds), The Politics of Reforming the Economic and Monetary Union (London, ECPR Press, 2020).

42  Elisabeth Lentsch countries’ bonds.77 Apart from the legal measures for fiscal discipline, the endeavour to safeguard the stability of the eurozone prompted a wave of financial solidarity for Member States suffering of solvency and liquidity problems.78 The Member States adopted a range of emergency financial support instruments both at the EU and the intergovernmental levels. The process started with the eurozone Member States declaring their intention together with the International Monetary Fund (IMF) to financially assist Greece, in the form of coordinated bilateral loans in 2010.79 Subsequently, stability facilities that were open also to other Member States were installed, first temporary and later permanently, in the form of the European Financial Stability Mechanism (EFSM),80 the European Financial Stability Facility (EFSF),81 and finally the intergovernmental European Stability Mechanism (ESM).82 These facilities provided financial assistance to Member States in financial distress in the form of loans and guarantees with low interest rates under strict conditionality of adjusting the economic policies. Due to the lack of resources and legal basis, the financial aid instruments were mostly framed outside of the EU framework. The financial assistance was justified as being ‘indispensable to safeguard the stability of the eurozone’, which the CJEU approved as a ‘higher objective’, to be ensured by budgetary discipline.83 This objective was explicitly introduced in an amendment of Article 136 TFEU that entered into force on 1 May 2013.84 According to this, The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.

In fact, this was the only formal Treaty amendment in the economic union since the outbreak of the crisis.85 According to the CJEU, the amendment does not create any new competences of the EU, but is simply of declaratory nature.86 This amendment must, thus, be regarded as linked to the ‘very existence’ of the monetary union, as an established EU objective in Article 3 (4) TEU.87

77 Catharin Klepsch and Timo Wollmerhäuser, ‘Yield Spreads on EMU Government Bonds – How the Financial Crisis Has Helped Investors to Rediscover Risk’ (2011) 46 Intereconomics 169; Vestert Borger, ‘The ESM and the European Court’s Predicament in Pringle’ (2013) 14(1) German Law Journal 113–39, 136; Michael Ioannidis, ‘Europe’s new Transformations: How the EU economic constitution changed during the Eurozone crisis’ (2016) CMLR 1237–82, 1253. 78 European Council Conclusions of 28 and 29 October 2010, Brussels. 79 Statement of 25 March 2010 of the Heads of State or Government of the euro area and Eurogroup meeting, doc 9417/10; Alberto de Gregorio Merino, ‘Legal developments in the economic and monetary union during the debt crisis: The mechanisms of financial assistance’ (2012) 49(5) CMLR 1613–46; Matthias Ruffert, ‘The European debt crisis and European Union law’, (2011) 48(6) CMLR 1777–1806. 80 Legal basis Art 122 (2) TFEU; Council Regulation (EU) 407/2010 of 11 May 2010 establishing a European financial stabilization mechanism, OJ L18/1. 81 Decision of 10 May 2010 of the Representatives of the Governments of the Euro Area Member States Meeting within the Council of the European Union establishing the European Financial Stability Facility, doc 9610/10; EFSF Framework Agreement of 7 June 2010 between the participating Member States. 82 The Treaty Establishing the European Stability Mechanism was first concluded on 11 July 2011 and a revised version was agreed on 2 February 2012. It entered into force on 27 September 2012. 83 CJEU, Case C-370/12 Pringle ECLI:EU:C:2012:756, paras 135–36. 84 Recital 2 Preamble European Council Decision No 2011/199, [2011] OJ L91/1. Adopted under the simplified Treaty amendment procedure of Art 48 (6) TEU. 85 See for details Bruno de Witte, ‘The European Treaty Amendment for the Creation of a Financial Stability Mechanism’ (2011) 6 Swedish Institute for European Policy Studies 1–8. 86 CJEU, Case C-370/12 Pringle, para 73. 87 Gregorio Merino, ‘Legal developments in the economic and monetary union during the debt crisis: The mechanisms of financial assistance’, 1629.

EMU Integration against the Backdrop of EU Law and Jurisprudence  43 In the context of creating the permanent financial stability mechanisms, the CJEU had also to rule on the Treaty prohibition of the so-called no bail-out clause, which precludes the EU or the Member States from taking over liabilities and commitments from any Member State. This shall ensure that each Member State is responsible for its own budget and remains subject to market forces, which have disciplining effects on the Member States’ fiscal policies. According to the Court, the aim of the provision is to encourage Member States to implement prudent budgetary policy. The Court also held that the effectiveness of market forces is ensured as long as the Member States remain responsible to their creditors, and strict conditionality is linked to the loans.88 These financial solidarity mechanisms, not being covered by the EU framework, have the effect of strongly impacting the national legal decision-making systems.89 In particular, the decisions on the allocation of national financial resources within the financial assistance mechanism touch upon the core prerogatives of national parliaments – their budgetary power. This effect triggered several claims of unconstitutionality, as reflected in various national judicial proceedings.90 The creditor states eventually accepted the EMU-related solidarity tools as constitutional. At the same time, the question of national identity and the concept of parliamentary budgetary autonomy were held up. All emergency instruments were linked to conditionality that was determined in memoranda of understanding (MoU). Under that conditionality, the disbursement of the instalments of the financial assistance was conditional upon the Member State’s compliance with structural reform measures of economic policies.91 These conditions were linked with EU economic coordination measures, adopted as non-legally binding recommendations. Thereby, a new form of enforcement for economic policy reform recommendations was introduced. Decisions on the disbursement of the financial aid tranches depend on fulfilment of the requirements adopted by the ESM Governing Board, which consists of the same members of the Eurogroup. Thus, while the tool of conditionality is formally applied and decided outside the EU legal framework, it is mostly shaped by measures adopted within the EMU coordination framework and by the same persons. It also became an important enforcement tool justified for confronting the crisis by solidarity means.92 In this context, it must be noted that the conditionality of economic reforms started to play also a role in the ECB’s interventions. This was first done implicitly in the context of its bond-buying schemes by setting structural reforms as conditions to its Securities Market ­ Programme.93 The ECB even explicitly conditioned the compliance with the macroeconomic adjustment or precautionary programme within the EFSF or ESM framework to the activation of

88 CJEU, Case C-370/12 Pringle, paras 135–47. 89 Oliver Höing, ‘Asymmetric Influence: National Parliaments in the European Stability Mechanism’, (Dissertation, Universität zu Köln, 2015); Manuela Moschella, ‘When Some Are More Equal than Others: National Parliaments and Intergovernmental Bailout Negotiations in the Eurozone’ (2017) 52 Special Issue 2, Government and Opposition, 239–65. 90 This was the case in Austria, Belgium, Estonia, Finland, Germany and Ireland. See the respective country chapters in this volume. 91 See on Greek financial assistance Maria Meng-Papantoni, ‘Legal Aspects of the Memoranda of Understanding in the Greek Debt Crisis’ (2015) ZEuS 3–26. 92 See Michael Ioannidis, ‘EU Financial Assistance Conditionality after “Two Pack”’ (2014) Zeitschrift für ausländisches öffentliches Recht und Völkerrecht 76ff; Dariusz Adamski, ‘National power games and structural failures in the European macroeconomic governance’ (2012) 49(4), CMLR 1319–64, 1363. 93 The famous letters sent on 5 August 2011 by Trichet and Draghi, at the time Governor of the Italian NCB, made the intervention of the ECB to reduce Italian rates contingent upon reforms in the labour market and the social security system. See Thomas Beukers, ‘The new ECB and its relationship with the Eurozone Member States: Between Central Bank Independence and Central Bank Intervention’ (2013) 50(6) CMLR 1579–1620, 1598ff.

44  Elisabeth Lentsch its OMT Programme94 and the Emergency Liquidity Assistance for national banks.95 It is doubtful, however, whether the ECB role of assessing the fulfilment of the reform conditions complies with the scope of the ECB’s competence in relation to its supporting role for the general economic policies of the EU.96 The definition of the content of the memoranda of understanding was left fully to the parties involved97 and captured in the form of macroeconomic adjustment programmes.98 These programmes touch upon a broad range of policy fields such as health, social policy and education.99 They cover general structural reforms or reference values on public spending or the level of taxation. Typically, they are framed in a very detailed and precise way. The national judiciaries in Cyprus, Greece, Portugal, Spain, Romania, Hungary and Latvia were challenged to strike a balance between the effective protection of citizens’ fundamental rights, in particular social rights, and the financial survival of the state.100 While most of them dealt with the austerity measures as national measures, the cases before the Portuguese and the Romanian Constitutional Courts led to tensions between European and international commitments, on the one hand, and the national constitution, on the other hand. In the cases before these constitutional courts the CJEU was seised through preliminary references to assess the legality of the national measures adopted pursuant to memoranda of understanding in light of EU law. The Court ruled that Member States are implementing acts of the memoranda of understanding and not EU law, rendering the Charter of Fundamental Rights and Freedoms inapplicable.101 Accordingly, it declared the preliminary references inadmissible, due to the lack of a link to EU law.102

94 ECB, Technical features of Outright Monetary Transactions, available at www.ecb.europa.eu/press/pr/date/2012/ html/pr120906_1.en.html. 95 Armin Steinbach, ‘The Lender of Last Resort in the Eurozone’ (2016) 53 CML Rev 361–84, 362. 96 Ioannidis, ‘Europe’s new Transformations: How the EU economic constitution changed during the Eurozone crisis’, 1274. 97 See for details Claire Kilpatrick, ‘Are the Bailouts Immune to EU Social Challenge Because They Are Not EU Law?’ (2014) 10 EConstL Review, 393–421, 415. 98 Recital 2 of the Preamble to the EFSF Framework Agreement; Recital 7 of the Preamble of the Regulation (EU) 407/2010 of the Council of 11 May 2010 establishing a European Financial Stabilisation Mechanism, [2010] OJ L118/1; Art 3 and Art 12 ESM Treaty; Art 7(1) Regulation (EU) 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability [2013] OJ L140/1. 99 Art 12 (1) ESM Treaty, see Ioannidis, ‘EU Financial Assistance Conditionality after ‘Two Pack’’, 90; Kilpatrick, ‘Are the Bailouts Immune to EU Social Challenge Because They Are Not EU Law?’, 413f; Kaarlo Tuori, Klaus Tuori, The Eurozone crisis: A constitutional analysis (Cambridge, Cambridge University Press, 2014) 188f. 100 See the respective chapters in this volume. 101 CJEU, Case C-370/12 Pringle, para 179. 102 In the Romanian cases, Romania had signed a memorandum of understanding in order to receive BoP assistance together with IMF and World Bank assistance: Cases C-434/11 Corpul National al Politistilor, order of 14 December 2011; C-134/12 Corpul National al Politistilor, order of 10 May 2012; C-369/12 Corpul National al Politistilor order of 15 November 2012. In the Portuguese cases, Portugal had negotiated an Memorandum of Understanding in order to receive EFSF and EFSM (together with IMF) assistance: C-128/12 Sindicato dos Bancarios do Norte and Others, order of 7 March 2013; C-264/12 Sindicato Nacional dos Profissionais de Segutos e Afins, order of 26 June 2014; C-665/13 Sindicato Nacional dos Profissionais de Segutos e Afins, order of 21 October 2014. The General Court has also been asked to consider the validity of Council measures concerning Greece’s excessive deficit and statements from the Eurogroup regarding Cyprus’s bail-in and bank deposits. All actions so far have been declared inadmissible: Cases T-541/10 and T-215/11 ADEDY and others v Council, Orders of 27 November 2012, EU:T:2012:626; T-327/13 Mallis and Malli v European Commission and European Central Bank, Order of 16 October 2014, ECLI:EU:T:2014:909. On Cyprus, see also Case T-289/13 Ledra Advertising Ltd v European Commission and ECB, Order of 10 November 2014 ECLI:EU:T2014:981 and pending Cases T-149/14 to T-152/14.

EMU Integration against the Backdrop of EU Law and Jurisprudence  45 However, the argument of a missing link to EU law is not convincing. The related agreements on economic and financial reforms are captured in the form of macroeconomic adjustment programmes concurrently adopted by Council Decisions.103 Furthermore, explicit secondary EU law on a regulatory framework for drafting conditionality and the respective surveillance for eurozone Member States was introduced by the Two Pack Regulation (EU) 472/2013.104 Thus, when the Member States are implementing these Council Decisions, the Charter is applicable. Furthermore, the labelling of Memoranda of Understanding as non-EU law acts, but as eurozone contractual agreements, should not be dissociated from the rule of law principle, which provides that ‘that poor framing cannot be dissociated from the legality Rule of Law issues with these sources: their complexity, inaccessibility and incomprehensibility’.105 c)  Financial Market Regulation and Supervision and Banking Union The global financial crisis threatened the stability of the financial markets and the banking system in the EU, and prompted the Member States to save their banking sector. The activities on the banking market was increasingly internationalised. However, the rules and supervision of the financial markets are still largely carried out at the national level.106 This regulatory inadequacy was perceived as a decisive factor for the emergence of the sovereign debt crisis.107 The Lisbon Treaty introduced institutional developments regarding delegation and implementing rules and the EU’s agency regime. The banking crisis, however, showed the need for further rules on financial stability. With the objective of avoiding further banking crises linked to the sovereign budgetary situations, the eurozone banking sector should be supervised at European level.108 To confront the risk of financial distress in the eurozone caused by the links between the public sector finances and the banking sector, common rules on the supervision, recovery and resolution of banks were adopted.109

103 Recital 2 of the Preamble to the EFSF Framework Agreement; Recital 7 of the Preamble of the Regulation (EU) 407/2010 of the Council of 11 May 2010 establishing a European Financial Stabilisation Mechanism, [2010] OJ L118/1; Art 3 and Art 12 ESM Treaty; Art 7(1) Regulation (EU) 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability OJ [2013] L140/1. 104 Regulation (EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability. 105 Kilpatrick, ‘Are the Bailouts Immune to EU Social Challenge Because They Are Not EU Law?’, 395. 106 Niamh Moloney, ‘EU financial market regulation after the global financial crisis: “More Europe” or more risks?’ (2010) 47(5), CMLR, 1317–83, 1319. 107 Richard Herring, ‘The Danger of Building a Banking Union on a One-Legged Stool’ in F Allen (ed), Political, Fiscal and Banking Union in the Eurozone? (Philadelphia, Wharton Financial Institutions Center Press, 2013) 11ff; Karl-Philipp Wojcik, ‘Bail-in in the Banking Union’ (2016) 53(1) CMLR 91–138, 91. 108 The interdependence between banks and national budgetary sovereigns became obvious in the financial and banking crisis, when the national sovereigns rescued their national banks with negative effects on the sovereign budgets and the national banks suffered under the high interests on government bonds. See Martin Selmayer, ‘Artikel 127’ in H von der Groeben, J Schwarze and A Hatje (eds), Europäisches Unionsrecht: Vertrag über die Europäische Union; Vertrag über die Arbeitsweise der Europäischen Union; Charta der Grundrechte der Europäischen Union (Baden-Baden, Nomos, 2015), paras 51–62; Wojcik, ‘Bail-in in the Banking Union’, 92. 109 See Presidents of the European Council, the European Commission, the Eurogroup and the European Central Bank on a roadmap for the achievement of a genuine EMU, 5.12.2012: www.consilium.europa.eu/uedocs/cms_Data/docs/ pressdata/en/ec/134069.pdf; European Commission, COM(2012)510, Communication on a Roadmap towards a Banking Union.

46  Elisabeth Lentsch In reaction thereto and following the de Laroisière report,110 a new European regulatory regime – the Single Rulebook – was introduced in 2010. It was created to develop the supervision of national financial institutions for banking, securities, insurance and occupational pensions.111 Respectively, the European System of Financial Supervision (ESFS) was established under the internal market legal basis (Article 114 TFEU112). The ESFS consists of new authorities and agencies, empowered to coordinate the financial supervision of national authorities and even adopt individual decisions.113 In particular, it comprises three authorities responsible for supervision of micro-economic level – the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority.114 With the aim of ensuring financial stability in the EU, the European Systemic Risk Board was also installed to conduct macroeconomic oversight and identify systemic risks in the financial market.115 The ECB was entrusted with comprehensive direct as well as indirect banking supervisory tasks in the context of the Single Supervisory Mechanism.116 According to Article 127 (6) TFEU, the Council may confer by a unanimous decision ‘specific tasks upon the European Central Bank concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings.’ The extension of the ECB’s powers to include bank supervision runs the risk of creating tension between its different underlying objectives. While monetary policy aims at achieving price s­ tability – a generally defined macroeconomic objective, banking supervision focuses on the stability of the financial markets and relate to individual financial actors. The pooling of monetary policy and supervisory functions relating to the same recipients under the single roof of the ECB may jeopardise the ECB’s prime focus on price stability.117 Furthermore, the strong

110 The High-level Group on Financial Supervision in the EU, chaired by Jacques de Larosière, Brussels, 25 February 2009 pointed out the supervision of individual financial institution and the stability of the financial system as a whole. 111 Comprising Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions, [2006] OJ L177/1 (as amended) and Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions, [2006] OJ L177/201 (as amended); Directive 94/19/EC on deposit-guarantee schemes, [1994] OJ L135/5; Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), [2009] OJ L335/1 (as amended); Directive 2004/39/EC on markets in financial instruments, [2004] OJ L145/1 (as amended); Directive 2009/65/EC on the co-ordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), [2009] OJ L302/32 (as amended). See for details, Fabian Amtenbrink, ‘Legal Developments’ (2011) 49 JCMS 165–86. 112 Art 114 TFEU allows for the approximation of laws with the objective of realisation of the single market. 113 Moloney, ‘EU financial market regulation after the global financial crisis: “More Europe” or more risks?’, 1344ff. 114 Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC, [2010] OJ L331/12; Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority) amending Decision No 716/2009/EC and repealing Commission Decision 2009/79/EC [2010] OJ L331/48 and European Securities and Markets Authority Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC, [2010] OJ L331/84. 115 European Systemic Risk Board Regulation (EU) No 1092/2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board [2010] OJ L331/1. 116 Council Regulation (EU) 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions [2013] OJ L287/63. Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation), [2014] OJ L141/1. 117 René Repasi, Limits and opportunities for the ECB in the multi-tier governance (European Parliament, 2013); Cornelia Manger-Nestler, Robert Böttner, ‘Ménage à trois? – Zur gewandelten Rolle der EZB im Spannungsfeld zwischen Geldpolitik, Finanzaufsicht und Fiskalpolitik’, (2014) EuR 621–37, 630f.

EMU Integration against the Backdrop of EU Law and Jurisprudence  47 independence of the ECB, which is necessary for the exercise of monetary policy, contravenes the requirement for greater accountability, which is necessary for banking supervision due to the involved restrictions of individual’s rights.118 The use of intergovernmental instruments plays also a role in the field of the Banking Union. The Bank Recovery and Resolution Directive,119 which contains rules and procedures on bank recovery and resolution at national level in all EU Member States, was complemented by the Single Resolution Mechanism Regulation.120 That Regulation, based on Article 114 TFEU – the internal market competence provision – provides rules and procedures for the resolution of credit institutions established within the eurozone. The Single Resolution Board (SRB) is empowered to initiate a bank resolution either on its own initiative or on notification of the ECB.121 Due to the no bail-out rule under Article 125 (1) TFEU, which prohibits the financing for resolution of banks, the Single Resolution Fund was created outside the EU legal framework through an Intergovernmental Agreement (IGA).122 The financial crisis triggered the further integration of the financial market at the EU level through regulation and supervision. As a consequence, the EU architecture was also further developed. New agencies and bodies were created, some of which having far-reaching competences affecting the EU legal architecture as a whole. In particular, the ECB was vested with significant supervisory powers. Thus, next to exercising powers concerning the eurozone monetary policy, it also exercises decisive powers regarding the financial actors in the eurozone. d)  Changes to the Institutional Order of the Economic and Monetary Union The crisis management measures strongly affected the EMU’s institutional architecture. As the only body fully committed to the EMU, the ECB has become a principal actor in stabilising the eurozone. It has done so by calming the markets during the crisis with its unconventional monetary policy tools. What is more, the ECB’s role in the field of coordination of economic policies was significantly enhanced by assigning it supportive tasks in the assessment of the economic coordination rules enhanced by the Six Pack and Two Pack legislation.123

118 Alexander Kern, ‘European Banking Union: A Legal and Institutional Analysis of the Single Supervisory Mechanism and the Single Resolution Mechanism’ (2015) ELR 154–87, 170f; Gianni Lo Schiavo, ‘From National Banking Supervision to a Centralized Model of Prudential Supervision in Europe?: The Stability Function of the Single Supervisory Mechanism’ (2014) Maastricht Journal of European and Comparative Law, 110–40, 123f; Beukers, ‘The new ECB and its relationship with the Eurozone Member States: Between Central Bank Independence and Central Bank Intervention’, 1579–1620. 119 Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/ EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012 of the European Parliament and of the Council [2014] OJ L173/190. 120 Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010, [2014] OJ L225/1. 121 Art 50 ibid. 122 Agreement on the transfer and mutualisation of contributions to the Single Resolution Fund, signed on 21 May 2014 by all Member States, except UK and Sweden. 123 When the Member State is subject to Council recommendations about its budgetary position – (on site monitoring missions Art 11 (3) Regulation (EU) No 1175/2011, on site surveillance mission with the Commission Art 10(a) (3) Regulation (EU) No 1177/2011); when a Member State is subject to a recommendation about the existence of an excessive imbalance position (on site surveillance mission with the Commission Art 13 (3) Regulation (EU) No 1176/2011); in monitoring a Member State’s corrective action plan Art 9 (3) Regulation (EU) No 1176/2011; in monitoring the progress of a Member State subject to enhanced surveillance (Art 3 (5) Regulation (EU) No 472/2013); in monitoring the progress

48  Elisabeth Lentsch The provision of its technical expertise is generally covered by Article 127 (1) second sentence TFEU. Under that provision, ‘the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union.’ The ECB’s role affecting the economic policy field became relevant in the context of the financial assistance mechanisms, which the CJEU declared legal due to their objective as economic policy measures.124 The ECB assesses the urgency of financial requests and, together with the Commission, the risk for the financial stability of the eurozone and the Member State.125 It acts as part of the Troika, being responsible together with the Commission and the IMF, for negotiating and monitoring the implementation of the economic conditions in Member States that are requesting financial assistance from the EFSF and ESM emergency funds.126 The CJEU approved the ECB’s involvement therein by outlining that its activities are covered by its mandate to support the general economic policies.127 With the establishment of the financial market regulation and supervision and in particular the Banking Union, the ECB was vested with supervisory tasks relating to the financial soundness of banks. The competence provision of Article 127 (6) TFEU was used to assign the ECB with the powers to directly and indirectly supervise all banks within the eurozone and other Single Supervisory Mechanism-participating Member States. Consequently, separated from the monetary policy function, the ECB is competent to authorise and revoke the operation licences for all banks and the supervision of governance arrangements of credit institutions.128 Institutionally, the ECB expanded with an additional internal organ – the supervisory board. The supervisory board proposes draft decisions under the banking supervision powers, and they are deemed to be adopted unless the Governing Council objects to them.129 Notwithstanding that the strict separation of meetings and agendas concerning monetary and supervisory tasks is provided for, the risk of interference with the ECB’s primary objective of price stability persists.130 The new rules for the financial sector were accompanied by the creation of the ESFS, which included the creation of new agencies, empowered with supervisory tasks.131 The European

made by a Member State in the implementation of its macroeconomic adjustment programme (Art 7(4) Regulation (EU) No 472/2013); and when assessing the situation of a Member State under post-programme surveillance (Art 14(3) Regulation (EU) No 472/2013). 124 CJEU, Case C-370/12 Pringle, para 56f. 125 Art 4 (4) TESM. 126 Art 3 (1) EFSF Framework Agreement; Art 13 (7) TESM. 127 CJEU, Case C-370/12 Pringle, para 165. 128 Arts 25ff Council Regulation (EU) No 1024/2013 conferring tasks to the ECB concerning policies relating to the prudential supervision of credit institutions. 129 Art 26 Council Regulation (EU) No 1024/2013 conferring tasks to the ECB concerning policies relating to the prudential supervision of credit institutions. 130 Manger-Nestler, Böttner, ‘Ménage à trois? – Zur gewandelten Rolle der EZB im Spannungsfeld zwischen Geldpolitik, Finanzaufsicht und Fiskalpolitik’, 635. 131 European Banking Authority (EBA) Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC, [2010] OJ L331/12; European Insurance and Occupational Pensions Authority (EIOPA) Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/79/EC, [2010] OJ L331/48; European Securities and Markets Authority (ESMA) Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC, [2010] OJ L331/84.

EMU Integration against the Backdrop of EU Law and Jurisprudence  49 Systemic Risk Board was created to maintain macro-prudential oversight of the financial system and analyse sources of potential systemic risks that may affect the financial system with the option of issuing early warnings and recommendations of impending problems for the financial stability.132 It is a forum for information exchange and coordination, and may issue recommendations and warnings adopted by its General Board.133 Also in this regard, the ECB received an important role in the field of macroeconomic supervision, as its President is heading the Board for the first five years134 and its secretariat is located in the ECB.135 The three new supervisory agencies – the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) – were entrusted to control the actors in the financial markets in order to ensure financial stability. They were also vested with some discretionary powers. The legality of that delegation of decision-making powers to an agency was challenged before the CJEU.136 Its judgment in the ESMA case further developed the Meroni doctrine by approving the legality of agencies’ established competences to adopt legally binding discretionary decisions. The CJEU saw it as necessary that the delegating authority provides clearly defined powers of intervention and strict review mechanism based on objective criteria.137 Another institutional novelty was the Single Resolution Board, an independent agency that was established during the 2014 Banking Union reforms. It administers the Single Resolution Fund for bank resolutions under the Single Resolution Mechanism.138 During the euro crisis, the eurozone formation of the Council, the Eurogroup, played a central role both at the EU level and in the context of financial assistance mechanisms.139 Although, it may not adopt legally binding decisions, it plays a strong de facto role in taking political decisions regarding the economic governance of the eurozone.140 The Lisbon Treaty formally recognised the forum of eurozone finance ministers and equipped it with an elected president for two and a half years.141 However, despite its significantly enhanced role in the economic governance, its status as an informal discussion group continued. This includes the lack of sufficient accountability checks on its actions.142 During the crisis, the European Council, consisting of the heads of state and government, the European Council’s President and the President of the Commission also appeared as

132 Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board, [2010] OJ L331/1. 133 ESRB decision-making body consists of ECB President and Vice-President, NCB Governors, representative of the Commission, Chairpersons of the EBA, EIOPA, ESMA, representatives of the Advisory Scientific Committee an Advisory Technical Committee; Art 6 ESRB Regulation (EU) No 1092/2010. 134 Art 5 ibid. 135 Arts 2, 3 ibid. 136 Case C-270/12 UK v Parliament and Council, ECLI:EU:C:2014:18. 137 See Chamon, ‘EU Agencies: Does the Meroni Doctrine Make Sense?’, 281. 138 Regulation (EU) No 806/2014 on the Single Resolution Mechanism. See for details: Kern, ‘European Banking Union: A Legal and Institutional Analysis of the Single Supervisory Mechanism and the Single Resolution Mechanism’, 175ff. 139 Art 13 TESM. 140 The Eurogroup holds its meetings regularly the day before the official ECOFIN meetings, which means that once the eurozone countries have a QMV of the Council, they are able to effectively act as a decision-making body. 141 Art 137 TFEU and Protocol (no 14) on the Eurogroup; formed at the initiative of France and Germany (European Convention, secretariat, Cover Note from Secretariat to The Convention, CONV 470/02, CONTRIB 180, Brussels, 22 December 2002, the Eurogroup has been recognised as an informal body since the European Council, Presidency Conclusions, Luxembourg, 12–13 December 1997, pt 44. 142 Paul Craig, The Eurogroup: Legitimacy, Democratic Accountability and Decision-Making (European Parliament, 2015).

50  Elisabeth Lentsch decisive actors.143 It acted increasingly as agenda setter for the EMU.144 This was manifest in its frequent meetings during the crisis seeking to safeguard the eurozone’s financial stability. Through its conclusions, it regularly called on the Commission to prepare specific proposals. It even created a specific task force on economic governance, which drafted legislative proposals.145 Thus, it exercised a strong role in initiating legislative action and it became a principal actor for the economic policy.146 Furthermore, the European Council played a monitoring role in the field of economic policies by discussing and reviewing economic matters under the Euro-Plus Pact and the European Semester.147 Consequently, the institutional structure of the EU decisionmaking process was decisively affected by the increased involvement of the European Council.148 The eurozone equivalent of the European Council – the Euro Summit, holds regular meetings as an intergovernmental forum since October 2008 to discuss the steps and directions of the eurozone. Thereby, the heads of state or government of the eurozone countries created a new discussion forum, which received formal recognition through the TSCG. The Euro Summit, its President and the President of the Commission discuss the strategic orientation for the eurozone at least twice a year. The Euro Summit also adopts conclusions, resembling those of the European Council, but lacking the same legal effect.149 At the executive level, the anti-crisis legislation strongly enhanced and broadened the tasks of the European Commission for investigating and assessing economic and fiscal data and situations in the Member States. With the creation of the intergovernmental frameworks that are dealing with economic governance matters outside the EU legal framework, the Commission was vested with specific tasks under the TSCG150 and the TESM.151 The Economic and Financial Committee was created to provide technical assessment and support with respect to the macroeconomic information gathered within the Commission and the Council. This body consists of senior officials from the national administrations and central banks as well as from the ECB and the Commission. It was established to promote the coordination of Member States’ policies by providing opinions on the economic and financial situations in the EU.152 The representatives of the eurozone members, together with the Commission

143 The European Council only became a formal institution with the Lisbon Treaty entering into force in 2009, Art 13 TEU; Henri Dewaele and Hansko Broeksteeg, ‘The semi-permanent European Council presidency: Some reflections on the law and early practice’ (2012) 49(3) CMLR 1039–74, 1039. 144 The Treaties provide the European Council with powers for specific tasks in the adoption of the economic policy guidelines for Member States and the monetary policy, Art 284 (3) TFEU – Art 113 (3) TEC – the ECB provides the annual report on ESCB activities and monetary policies. 145 Mark Dawson and Floris de Witte, ‘Constitutional Balance in the EU after the Euro‐Crisis’ (2013) 76(5) The Modern Law Review, 830–31. 146 Uwe Puetter, ‘The European Council – the new centre of EU politics’, SIEPS European Policy Analysis (2013), 1–16; Wolfgang Wessels, The European Council, The European Union series (Hampshire, Palgrave Macmillan Education, 2016) 2. 147 Dawson and Witte, ‘Constitutional Balance in the EU after the Euro‐Crisis’, 831. Referring to European Council, Presidency Conclusions, 1–2 March 2012, www.register.consilium.europa.eu/pdf/en/12/st00/st00004-re02.en12.pdf. 148 Dawson and Witte, ‘Constitutional Balance in the EU after the Euro‐Crisis’, 817; Kenneth A Armstrong, ‘The new Governance of EU Fiscal discipline’ (2013) ELR 601–17. 149 Art 12 TSCG. 150 Arts 3, 8, TSCG. 151 Art 13 TESM. 152 Art 134 (1)TFEU, See for critical assessment Alexandre de Streel, ‘The Confusion of Tasks in the Decision-Making Process of the European Economic Governance’ in F Fabbrini (ed), Modern Studies in European Law: What Form of Government for the European Union and the Eurozone? (London, Bloomsbury Publishing, 2015), 79–93, 88; Francis Snyder, ‘EMU – Integration and Differentiation: Metaphor for European Union’ in P Craig and G de Búrca (eds), The evolution of EU law, 2nd edn (Oxford, Oxford University Press, 2011) 687–716. The European Council became only a formal institution with the Lisbon Treaty entering into force.

EMU Integration against the Backdrop of EU Law and Jurisprudence  51 and the ECB, form the Eurogroup Working Group, with the essential task of preparing the Eurogroup’s work. The construction of the EMU, with the ECB acting independently in monetary policies, and the economic union being characterised by its intergovernmental nature, did not leave room for a strong role for the European Parliament (EP) in the field.153 Admittedly, it is involved in the legislative process for adoption of secondary law, which was enhanced by the Lisbon Treaty.154 However, apart from that, the Treaties provide the EP only with a consultative role155 in the economic governance and it has the right to be kept informed of relevant developments.156 The legislative reforms taken in light of the crisis strengthened the involvement of the European Parliament by establishing the so-called economic dialogue. That dialogue allows the EP, together with the Council and the Eurogroup, to contribute to the discussions on economic policy issues and measures.157 The role of the CJEU is rather limited in the field of EMU. Certainly, the ECB’s acts generating legal effects, with the exception of opinions and recommendations, are subject to the CJEU’s judicial review.158 Under the institutional framework of the economic union it is the Council that is responsible for reviewing the compliance of Member States action with the economic policy guidelines and the budgetary rules. Accordingly, the option of an infringement procedure against a Member State is explicitly excluded for most of the measures adopted under the EDP.159 Such procedure may only be initiated if a eurozone Member State does not comply with a sanction decision under Article 126 (11) TFEU. Council decisions may also be challenged in actions for annulment,160 which was done in Case C-27/04, or in actions for failure to act, which also include Commission omissions.161 The CJEU’s judicial power was even extended to the EMU-related intergovernmental agreements – the TESM and the TSCG.162 They assigned the CJEU to settle disputes among the contracting parties. The attribution of jurisdiction was based on Article 273 TFEU. According to the TSCG, it is up to the Contracting Parties to seize the CJEU. This procedural setting diminishes the probability of using that option for reasons of political economy similar to the state-to-state infringement actions under EU law.

ii.  Concluding Remarks All in all, the economic governance system under the Maastricht Treaty has been considerably reformed. This was largely done through secondary legislation addressing institutional,

153 For details on the role of the European Parliament in the EMU see Fasone, ‘European Economic Governance and Parliamentary Representation. What Place for the European Parliament?’, 164–85. 154 In the legislative action, the Lisbon Treaty enhanced the European Parliament’s role by authorising it with a co-decision power for adopting new rules for the multilateral surveillance procedures of Art 121 (6) TFEU. For legislation referring to the implementation of the excessive deficit procedure under Art 126 (14) TFEU, the European Parliament acts only are consulted. 155 The European Parliament was consulted in the amendment procedure of Art 136 TFEU – EP, Resolution of 23 March 2011 on Amendment of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro. 156 Art 121 (2) TFEU. The Council has to inform the European Parliament of BEPGS recommendations. 157 Regulation (EU) No 1175/2011 and Regulation (EU) No 472/2013. 158 Art 263, Art 264, and Art 267 TFEU. 159 Art 126 (10) TFEU. 160 Art 263 TFEU. Restricted judicial access to natural and legal persons due to the application requirement of individual concern. 161 Art 265 TFEU. 162 Art 8 TSCG, Art 37 TESM.

52  Elisabeth Lentsch substantive and procedural matters. These changes sought to further develop the economic governance rules of the eurozone. While the euro crisis created some political will for reforms, the underlying asymmetry of the EMU was not addressed because it would require Treaty amendments. The increased use of intergovernmental tools significantly impacted the EMU framework, both substantively and institutionally. All in all, the EMU’s founding institutional architecture was not changed, except for formalising the existence of the Eurogroup. In particular, the euro crisis led to the extension of powers of pre-existing actors and the creation of new bodies and authorities. Thereby, the amount of supranational control and oversight over the national policies was drastically reinforced. The CJEU’s jurisprudence in the field proved particularly important. In particular, the Pringle163 and the Gauweiler164 cases significantly affected the scope of the Treaty rules on the market discipline concept of the EMU. Safeguarding the eurozone and its stability became new objectives for the EU, having decisive consequences on the interpretation of the underlying concepts and rules. Accordingly, in case of emergency, which is a vague concept and open to interpretation, the market forces are substituted by the rules and decisions taken in the context of the various financial means both at EU level and outside the EU framework. The application of strict conditionality justifies deviating from the market forces. Such linkage to the compliance with reform recommendations being adopted at supranational level introduced a new form of enforcement of the non-binding recommendations taken under the economic policy coordination competence. Overall, the fiscal rules affected the Member States’ constitutional orders. In particular, during the implementation of the crisis management measures, Member States that faced financial difficulties and were under surveillance, adopted reforms addressing deficits that affected their social welfare models. Relevant examples were Member States such as Greece, Italy, Portugal and Spain that explicitly165 or implicitly166 featured at the constitutional level certain social state models. Finally, the balanced budget rule affected also the federal organisation of some Member States by reinforcing the centralisation of certain powers.

III.  Reform Initiatives The euro crisis built a broad consensus on the necessity for EMU reforms, as reflected in numerous proposals and initiatives. The EU institutions’ reports on a roadmap for EMU reforms included long-term objectives for a complete and genuine EMU.167 These general suggestions on developing the EMU remained rather vague. Nevertheless, a more detailed and long-awaited policy package featuring specific initiatives and legislative reform proposals was issued only in December 2017, with the so-called Saint Nicholas package.168 The aim of the package was to build

163 CJEU, Case C-370/12 Pringle, para 135. 164 Ibid. 165 Arts 9.2, 33.2 Spanish Constitution, Arts 21, 25.1, 106.1 Greek Constitution. 166 Arts 2, 9 d) Portuguese Constitution, Arts 3, 42 Italian Constitution. 167 Herman van Rompuy, Towards A Genuine Economic And Monetary Union (2012); European Commission, ‘Blueprint for a deep and genuine economic and monetary union – Launching a European Debate’ COM (2012) 777, Four Presidents’ report, ‘Towards a genuine economic and monetary union’ (2012), Five Presidents’ Report, ‘Completing Europe’s Economic and Monetary Union’ (2015), European Commission, ‘Reflection paper on the deepening of the economic and monetary union’ COM (2017) 291. 168 European Commission, ‘Communication on further steps towards completing Europe’s economic and monetary union: a roadmap’ COM (2017) 821.

EMU Integration against the Backdrop of EU Law and Jurisprudence  53 on the existing legal tools. The further-reaching ideas for the long-term contain ambitious aspects for the EMU would require the political consensus and a new underlying Treaty framework.169 One aspect concerns the integration of the intergovernmental arrangements, in particular the TSCG170 and the ESM Treaty171 into the EU framework for reasons of its completeness and democratic accountability.172 Furthermore, financial resources from both the EU and intergovernmental sources shall bring more economic convergence and resilience of the Member States and raise legal questions on their compatibility with the set EU Treaty rules and objectives.

A.  TSCG Incorporation The Commission issued a proposal for a Council Directive relating to the TSCG subject-matter.173 That proposal, however, contains no significant innovations regarding fiscal and institutional rules to those under the SGP.174 Moreover, crucial and legally controversial elements, such as the RMV modality for the EDP of Article 7 TSCG, were left out. Consequently, they still remain in force under the TSCG, which triggers the justified question of the necessity for the envisaged incorporation, when the existing Treaty remains in force anyway.175

B.  ESM Incorporation Under the proposal for the so-called European Monetary Fund (EMF), the EMF shall take over the financial and institutional features of the ESM and achieve independence from the IMF.176 The proposal is based on the flexibility clause of Article 352 TFEU which allows the Council,

169 See for a detailed assessment Elisabeth Lentsch, ‘Report on the compatibility of reform scenarios with the EU Treaties’, (2018) at emuchoices.eu. 170 European Commission, ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’ COM (2017) 824. 171 European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’ COM (2017) 827. 172 Five Presidents’ Report, ‘Completing Europe’s Economic and Monetary Union’ (2015), 18. See on the consequences of sidestepping from the Community Method, Elisabeth Lentsch, ‘Report on the institutional consequences of fiscal and economic integration measures’, (2017) at emuchoices.eu, 39. 173 European Commission, ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’ COM (2017) 824. 174 The novelties relate to the definition of national balanced budgets, which according to Art 3 (3) TSCG is if the annual structural balance of the general government budget, the annual cyclically adjusted balance net of one-off and temporary measures is less than -0.5% of GDP in structural terms. Art 2a of Regulation (EU) No 1175/2011 amending Council Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies defines it as -1% of GDP in cyclically adjusted terms, net of one-off and temporary measures. As for the institutional rules, the national incorporation of fiscal rules and establishment of independent bodies, which shall monitor the compliance with the fiscal rules reflect the rules as set out in the Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States, [2011] OJ L306/41 and Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area [2013] OJ L140/1. 175 Diane Fromage, Bruno de Witte, The treaty on stability, coordination and governance (2017) at Maastricht University blog. 176 European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’ COM (2017) 827.

54  Elisabeth Lentsch acting unanimously on a proposal from the Commission and after obtaining the consent of the European Parliament, to adopt measures if necessary to attain one of the objectives set out in the Treaties when these have not provided the necessary powers. The safeguard of the financial stability of the eurozone has become an explicit Treaty objective with the introduction of paragraph 3 under Article 136 TFEU.177 According to the CJEU, such stability constitutes a ‘higher objective’.178 The EMF proposal implies explicitly a shift of the outlined objective of financial stability of the eurozone as a whole and its Member States to the stability of each Member State separately.179 Thereby, the scope for deviation from the no bail-out principle, as expressed in Article 125 TFEU, is explicitly broadened. These proposed changed are problematic because the Treaties explicitly provide for specific emergency support in certain cases, such as under Article 122 TFEU. Therefore, they prohibit the creation of another emergency mechanism under the Treaty framework. Instead of risking violating the EU Treaties, one may suggest amending the ESM Treaty itself. Such an approach would equally address the core arguments for its integration in the EU framework, which relate to its governance, transparency and legitimacy.180 As for democratic accountability,181 the European Parliament has to give its consent to the legislative proposal,182 whereas the national parliaments may only express their opinion.183 As for the decision-making of the EMF, only reporting requirements to the parliaments are foreseen.184 The principal decisions are still only taken by the Board of Governors consisting of the Eurogroup members. Their voting right is based upon the subscribed capital contribution.185

177 ‘The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole.’ This concept was introduced by applying the simplified Treaty amendment procedure of Art 48 (6) TEU when adding a 3rd paragraph to Art 136 TFEU, entering into force on 1st of May 2013. 178 CJEU, case Pringle C-370/12, para. 135. 179 Compare Art 3 TESM with Art 3 (1), (2) (a) and Art 12 (1) European Commission, Annex to Proposal for a Council Regulation on the establishment of the European Monetary Fund (2017). Art 3 ibid.: (1)’ shall contribute to the safeguarding the financial stability of the euro area’; (2) (a) ‘mobilise funding and provide stability support under strict policy ­conditions, appropriate to the financial assistance instrument chosen, to the benefit of its Members which are experiencing, or are threatened by, severe financing problems, if indispensable to safeguard the financial stability of the euro area as a whole or of its Members’. 180 Giorgio Monti, ‘The European Stability Mechanism: The path to reform’ in R Marimon, T Cooley (eds), The EMU after the Euro Crisis: Lessons and Possibilities: Findings and Proposals from the Horizon 2020 ADEMU project (London, CEPR Press, 2018) 93–98, 96. Art 5 European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’ COM (2017) 827. 181 European Commission, ‘Communication on further steps towards completing Europe’s economic and monetary union: a roadmap’, COM (2017) 821, 2–3; European Commission, ‘Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (2017)’, COM (2017) 826, 3. 182 Art 352 (1) TFEU. 183 Art 352 (3) TFEU. 184 Art 5 European Commission, Annex to Proposal for a Council Regulation on the establishment of the European Monetary Fund; European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund by submitting annual reports on the execution of its tasks’, COM (2017) 827. The European Parliament may call the Managing Director to hearings and require answers to specific questions. In addition, the regulation provides for confidential oral discussions with EMF Managing Director on progress of financial support. 185 European Commission, Annex to Proposal for a Council Regulation on the establishment of the European Monetary Fund, Art 2 (3); the initial authorised capital stock of the EMF and contribution key of the Member States are calculated according to Art 11 and Table 1.

EMU Integration against the Backdrop of EU Law and Jurisprudence  55 These voting modalities are crucial for the proposed transformation of the unanimity rule186 to reinforced qualified majority voting. The latter would require 85 per cent of the votes cast to adopt decisions on (1) providing stability support and related policy conditions to an EMF member, (2) the mandate for the Commission to negotiate the MoU and (3) the change in pricing policy for the financial assistance.187 Such a voting procedure implies that only the bigger members, Germany (26.9616 per cent), France (20.2471 per cent) and Italy (17.7917 per cent), would have effective veto powers in these fields. Established as a regulatory agency with legal personality, the EMF may in principle act independently from other EU organs.188 According to the Meroni case,189 such agencies may be assigned specific tasks and take their own decisions. However, their action must remain within the limits of delegated competence and may be subject to the delegating authority.190 In this light, the Council, as the delegating institution under Article 352 TFEU, shall approve and, thus, control the discretionary decisions taken by the Board of Governors and the Board of Directors by qualified majority.191 It is notable that body to which powers would be delegated and the body delegating these powers and supervising their exercise consist of the same individuals – the Finance Ministers of the eurozone Member States. With a further initiative of the Commission, the Vice Commissioner shall be appointed chair of the Board of Governors in his/her role as a European Finance Minister.192 Even though the role should be a neutral one, he/she would still have considerable influence on the Board of Governors’ and thus the EMF’s work, by directing and setting the agenda. Such a role would also conflict with the Commission’s mandate to serve the EU’s interest and to be a neutral observer. The most crucial aspect of the new EMF concerns the resources, which shall be kept fully outside of the EU budget. This contravenes the established Treaty rules on the financial provisions of the EU.193 Under these rules, the EU shall secure the means necessary to attain its objectives and implement its policies. These objectives and policies shall be financed wholly from own resources, as specified in the Own Resources Decision, which can be considered as quasi-primary law, based on a unanimous decision in the Council, and ratified by all national parliaments.194 Furthermore, the principle of unity of the EU budgetary system requires all revenue and expenditure of the EU to be covered in a single budget.195 This contains the prohibition on creating a separate budget within the EU system.196 Furthermore, the EU Treaties and financial rules are restrictive of the planned option of borrowing capacity on financial markets as well as lending capacity to Member States. To safeguard the principle of equilibrium, any expenditure arising from an act must be

186 Art 4 (4) TESM. 187 European Commission, Annex to ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’, Art 5(7). 188 European Commission, Proposal for a Council Regulation on the establishment of the European Monetary Fund COM (2017) 827, 5. 189 CJEU, Case C- 9/56 and 10/56 Meroni ECLI:EU:C:1958:7. 190 CJEU, Case C-270/12 UK/EP ECLI:EU:C:2014:18. 191 Art 3 European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’ COM (2017)827. 192 European Commission, ‘Communication on a European Minister of Economy and Finance’ COM (2017) 823. 193 Arts 310ff TFEU. 194 Art 311 TFEU and Decision 2014/335/EU, Euratom of 26 May 2014 on the system of own resources of the European Union, OJ L168/105 based on Art 311(3) TFEU. 195 Arti 310 (1) TFEU and Art 7 Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002, [2012] OJ L298/1–96. 196 Siegfried Magiera, ‘Article 310’ in E Grabitz, M Hilf and M Nettesheim (eds), Das Recht der Europäischen Union (München, Beck, 2017), para 25.

56  Elisabeth Lentsch assured of being within the limit of the EU’s own resources and in c­ ompliance with the multiannual financial framework.197 The resources of the EMF shall also serve as a common fiscal backstop covering all Member States participating in the Banking Union. Accordingly, the Single Resolution Board, which is responsible for resolving credit institutions within the framework of the Banking Union, may make use of the financial pool of the EFM.198 The Board of Governors cannot review the substance of the SRB decisions. Furthermore, decisions on the drawdown of a credit line or the provision of guarantees on liabilities would need to be adopted by the Board of Governors within 12 hours of the request from the SRB.199 This procedure puts the Board of Governors and the Council under decisive time pressure and national parliaments are de facto excluded from this process.

C.  Enhancement of Structural Convergence Institutional, administrative and structural reforms with economic and fiscal effects received broad attention. These reforms were aimed at strengthening Member States’ economic resilience, ability to recover from recessions and reduction of sovereign debts and ensuring the principle of fiscal responsibility.200 The common guidelines and country-specific recommendations that are agreed under the European Semester embrace a variety of policy fields, but lack any legally binding effect.201 This relates also to the EU institutions officials’ ambitions to improve the economic performance of the eurozone as a whole. In this light, a common eurozone fiscal stance as promotion of a common fiscal stimulus and policy orientation should enhance collective responsibility and developing the eurozone as a single entity in the Member States’ fiscal decisions.202 The creation of the advisory European Fiscal Board follows this same pattern of aiming at increased cooperation with and among national fiscal boards and better compliance with the fiscal rules.203 Thereby, practical

197 Art 310 (4) TFEU and Art 17 (2) of the financial rules. The Union budget serves as collateral for borrowing at the capital markets to the Balance of Payments Facility to non-eurozone Member States (Regulation (EC) No 332/2002 of 18 February 2002 establishing a facility providing medium-term financial assistance for Member States’ balances of payments, [2002] OJ L53/1 based on Art 352 TFEU) and the EFSM in order to provide loan facilities to EU Member States (Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism, [2010] OJ L18/1, based on Art 122 (2) TFEU). The respective guarantee for such are to be entered into the EU budget in the form of a budget line, specifying the purpose and ceiling of budget (Decision 2014/335/EU, Euratom of 26 May 2014 on the system of own resources of the European Union, OJ L168/105. The Own Resources Decision sets out the own resources ceiling, which are specified for each budget line in the Multiannual Financial Framework regulation.) 198 European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’, COM (2017)827, Explanatory memorandum, 2, and Art 3 (2) lit b and Art 22 European Commission, Annex to Proposal for a Council Regulation on the establishment of the European Monetary Fund. 199 Art 22 (7) ibid. 200 Van Rompuy, Towards A Genuine Economic And Monetary Union (2012), 10; Five Presidents’ Report, ‘Completing Europe’s Economic and Monetary Union’; European Commission, ‘Reflection paper on the deepening of the economic and monetary union’ COM (2017) 291, 23. 201 Art 5 Regulation (EU) No 1175/2011 amending Council Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies. 202 European Commission, ‘Reflection paper on the deepening of the economic and monetary union’ COM (2017) 291, 15; European Commission, ‘Communication Towards a positive fiscal stance for the euro area’ COM (2016) 727. In general a fiscal stance shall give orientation to fiscal policy by governments’ discretionary decisions on tax and expenditure. 203 European Commission, Decision (EU) 2016/221 of 12 February 2016 amending Decision (EU) 2015/1937 ­establishing an independent advisory European Fiscal Board (2016).

EMU Integration against the Backdrop of EU Law and Jurisprudence  57 limits are mainly the difficulty of defining and assessing an appropriate eurozone fiscal stance for all Member States. At the moment the priorities for an adequate policy mix of employment, growth and social fairness are determined by the sum of the fiscal stances at national level.204 The EU Treaty framework of economic governance allows for guidance and recommendations to be issued to the Member States suggesting to them to consider the eurozone-wide perspectives in their fiscal decisions. Accordingly, the European Fiscal Board has advisory competences only.205 Furthermore, the implementation of recommended structural reforms for the national economic framework was done through introducing stronger surveillance and enforcement tools under the SGP.206 Thereby, more ownership for the necessary reforms at the national level is promoted. National parliaments, social partners, national independent boards and other relevant stakeholders should be increasingly involved in cooperation and dialogue within the European Semester.207 To this end, the Council recommended that Member States establish national independent boards.208 These bodies should identify and assess the developments in productivity and competitiveness at the national level. Their findings should also inform the supranational level, in the framework of the European Semester and the Macroeconomic Imbalance Procedure. In the long run, these national independent assessments and recommendations should receive more binding effect.209 However, such binding decisions are harder to legitimise in particular in a field characterised by discretionary and political judgments concerning economic situations and reforms.210 The Commission started offering concrete technical support to Member States. That support helped them design and implement structural reforms as part of their efforts to support job creation and sustainable growth. The Commission Structural Reform Support Service was established in 2015 to provide technical assistance aiming at national capacity-building.211 This assistance involves the organisation of workshops, expert advice, working visits, training, data collection, research, methodology development, IT capacity-building, studies, evaluations and awareness-raising campaigns, systems and tools.212 The Service manages the Structural Reform Support Programme for the 2017–20 period, managing a budget of 142.8 million euro, which under the post-2020 Multiannual Financial Framework (MFF) proposal is to be increase to 840 million euro for the 2021–27 period.213 Such technical assistance 204 European Commission, ‘Reflection paper on the deepening of the economic and monetary union’ COM (2017) 291, 15. 205 European Commission, Decision (EU) 2015/1937 of 21 October 2015 establishing an independent advisory European Fiscal Board (2015). 206 Armin Steinbach, ‘The Structural Reforms in EU Member States: Exploring Sanction-Based Mechanisms’ (2016), European journal of legal studies, 173–210. 207 European Commission, ‘Reflection paper on the deepening of the economic and monetary union’ COM (2017) 291, 24. 208 Council, Council Recommendation of 20 September 2016 on the establishment of National Productivity Boards, [2016] OJ C349/1–4. 209 Five Presidents’ Report, ‘Completing Europe’s Economic and Monetary Union’, 8; European Commission, ‘Recommendation for a Council Recommendation on the establishment of National Competitiveness Boards within the Euro Area’ COM (2015) 601. 210 Päivi Laino, Tuomas Saarenheimo, ‘On the limits of EU economic policy coordination’, (2016) ADEMU Working Paper, 17. 211 Up to 160 staff members are based in Brussels and in some Member States, under the guidance of Vice-President Valdis Dombrovskis and managed by Director-General Maarten Verwey. 212 Art 6 Regulation (EU) 2017/825 of the European Parliament and of the Council of 17 May 2017 on the establishment of the Structural Reform Support Programme for the period 2017 to 2020 and amending Regulations (EU) No 1303/2013 and (EU) No 1305/2013, [2017] OJ L129/1–16. 213 European Commission, ‘Communication on new budgetary instruments for a stable euro area within the Union framework’ COM (2017) 822; Annex to European Commission, ‘Communication on a new, modern Multiannual Financial Framework for a European Union that delivers efficiently on its priorities post-2020’ COM (2018) 98.

58  Elisabeth Lentsch is provided on a voluntary basis and upon request from a Member State. Furthermore, the Service provides assistance in designing and implementing structural reforms drawing on resources from the EU Structural and Investment Funds.214 The EMU debates saw the introduction of another strand of support. That support was based on moving away from the sanction-based approach of the SGP rules and toward the introduction of incentives for the implementation of structural reforms. This change brought a new dimension of sharing resources to support national efforts in reforming their economic systems. Thereby, the use of the available EU financial funds and firewalls shall be linked and conditioned to findings under the European economic coordination process.215 In this light, the existing tools under the EU cohesion and investment policy are designated to reduce disparities among regions and Member States and promote economic convergence and resilience to economic shocks at national and local level within the EU. The resources of the European Fund for Regional Development, the European Social Fund, the Cohesion Fund, and the European Investment Bank (EIB) played a strategic role since the economic and financial crisis.216 They did so by fostering convergence, long-term growth, investment and financial stability in the Member States.217 The use of these resource pools is planned to be even more closely linked to the European Semester findings with the aim to support economic reform processes in the Member States.218 Further synergies between the EIB and a future EMF may be established in the future.219 Accordingly, as a condition for receiving financial means from the European Structural and Investment Fund and European Fund for Strategic Investment, the Member States shall commit ex ante to reforms under their National Reform Programmes.220 In the long run, the Reform Support Programme shall consist of a proper budget line for extra grants for the reform delivery tool, which shall comprise 22 billion euros under the MFF, post-2020.221 This follows the idea of creating a proper eurozone-dedicated fiscal capacity to provide for structural reform assistance.222

214 European Commission, ‘Factsheet on EU Structural Reform Support Service’ (2017). 215 European Commission, ‘Proposal for a Regulation amending Regulation (EU) 2017/825 to increase the financial envelope of the Structural Reform Support Programme and adapt its general objective’ COM (2017) 825. 216 European Commission, ‘Reflection Paper on the Future of EU Finances’ COM (2017) 358, 7. 217 European Commission, ‘Communication on a European Minister of Economy and Finance’ COM (2017) 823, 4. About half of the EU funding is currently channelled to concrete projects through the five European Structural and Investment Funds. One specific example to maximise the absorption of EU funds for the enhancement of public investments over time and also in the event of economic difficulties for stabilisation with exceptional measures was the support of the Greek real economy through EU Funds. European Commission, ‘Communication A New Start for Jobs and Growth in Greece’ COM (2015) 400. 218 European Commission, ‘Proposal for a Regulation amending Regulation (EU) 2017/825 to increase the financial envelope of the Structural Reform Support Programme and adapt its general objective’ COM (2017) 825; European Commission, ‘Reflection Paper on the Future of EU Finances’, COM (2017) 358, 16. 219 European Commission, ‘Proposal for a Regulation on the establishment of a European Investment Stabilisation Function’ COM (2018) 387. 220 European Commission, ‘Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006’ COM (2017) 826. 221 European Commission, Annex to ‘Communication on A Modern Budget for a Union that Protects, Empowers and Defends – The Multiannual Financial Framework for 2021–2027’ COM (2018) 321, 33f. 222 Van Rompuy, Towards a Genuine Economic and Monetary Union: Interim Report (2012), 5. In October 2012, the idea of the establishment of a fiscal capacity of the EU came up. It should be used for functions not covered by the MFF of the EU budget. Mario Monti, Daniel Daianu, Clemens Fuest, Kristalina Georgieva, Ivailo Kalfin, Alain Lamassoure, Pierre Moscovici, Ingrida Simonyté, Frans Timmermans and Guy Verhofstadt, Future Financing of the EU: Final report

EMU Integration against the Backdrop of EU Law and Jurisprudence  59 The Commission, based on an agreement with the Member State concerned, would adopt an implementing decision on the reform commitment package and the respective financial allocations in line with the findings under the European Semester.223 In the event of non-compliance with the agreed reforms, the financial support would be withheld, based on the Commission’s decision on fulfilment of the agreed milestones and targets. Such instrument resembles the memoranda of understanding, applied under the ESM framework, which conditions financial assistance on the implementation of structural reforms.224 Thereby, the investment support of various cohesion policy funds might be operationalised to achieve the implementation of the findings under the economic governance framework. While the respective Member State voluntarily makes the commitment, this carrot-and-stick approach becomes problematic. It is problematic because it circumvents the legally non-binding nature of the recommendations and the findings within the economic and fiscal policy coordination under the Article 121 TFEU procedure. Furthermore, with the empowerment of the Commission to decide on the content and the disbursement of financial means, the institutional decision-making set-up for economic policy coordination, which is based on the Council, is circumvented.

D.  Stabilising Cyclical Divergences By Macroeconomic Stabilisation Mechanism The fundamental challenge of the functioning of the EMU is defined by the cyclical divergences in the eurozone. The EMU Treaty rules are limited to prevent financial distress of the Member States. The absorption of macroeconomic shocks by stabilization mechanisms falls under the competence of the Member States. As outlined above, it is the ECB that is better placed to fulfil the task of country-specific assistance through its unconventional monetary policy and the European Stability Mechanism devised to tackle immediately severe economic recessions in Member States by granting conditioned credits and guarantees. While the general Treaty rules are aimed at preventing instability and allow financial assistance in severe cases threatening the stability of the eurozone as a whole, more far-reaching and long-term proposals relate to supranational mechanisms aimed at countering asymmetric shocks before they become severe. Shocks should primarily be addressed at the national level. As soon as a Member State is unable to manage alone the shock at the national level, support from the EU should be provided.225 To ensure the overall stability of the eurozone and prevent as well as reduce contagious effects of economic downturns across the eurozone, common stabilisation mechanisms were discussed at the very beginning as well as in the aftermath of the euro crisis.226 The EU institutions remained and recommendations of the High Level Group on Own Resources (2016) included the discussion of a eurozone budget. Provision of public finances for a eurozone capacity for the next MFF has been suggested. 223 European Commission, ‘Communication on new budgetary instruments for a stable euro area within the Union framework’ COM (2017)822, 10. 224 Kilpatrick, ‘Are the Bailouts Immune to EU Social Challenge Because They Are Not EU Law?’, 411. 225 Henrik Enderlein, Jacques Delors, Helmut Schmidt, Peter Bofinger, Laurence Boone, Paul De Grauwe, Jean-Claude Piris, Jean Pisani-Ferry, Maria João Rodrigues, André Sapir, António Vitorino, Sofia Fernandes and Eulalia Rubio, Completing the Euro – A road map towards fiscal union in Europe: Report of the ‘Tommaso Padoa-Schioppa Group’ (2012), 30. 226 Pierre Werner, ‘Report of the Council and the Commission on the realisation by stages of economic and monetary union in the Community’ (1970); MacDougall, D, Biehl, D, Brown, A, Forte, F, Fréville, Y, O’Donoghue, M and Peeters, T, ‘Report of the study group on the role of public finance in European integration’ (1977), Van Rompuy, Towards a Genuine Economic and Monetary Union: Interim Report (2012), 5.

60  Elisabeth Lentsch very vague about the design of such mechanisms, but outlined some general principles. According to them, such mechanisms shall function rapidly and automatically and must involve an incentive for sound fiscal policy, such as the obligation to implement national reforms.227 Introducing automatic functioning would require a change of the politicised fiscal policy coordination rules. They would need to be laid down in clear rules, including the timeframes for payments and repayments as well as the size and funding mechanisms.228 Unidirectional or permanent transfers as well as the moral hazard risk must in any case be avoided.229 Examples of macroeconomic stabilisation instruments are unemployment benefit schemes230 or rainy day funds, which were included in the debate on these mechanisms. A legislative proposal was eventually issued for a European investment protection scheme (EIPS). Its objective is to employ EU resources where national investment protection mechanisms are unable to absorb a shock.231 In the event of a downturn, the investment levels shall be protected by automatic and unconditional financial assistance. As a condition, which shall guarantee the incentive to conduct sound fiscal policies, the SGP rules on fiscal discipline would need to be fulfilled over two consecutive years. As a first step, the EIPS shall become active under the cohesion policy, and more concretely, under the European Structural and Investment Funds. Thereby, well-identified priorities and already planned projects or activities at the national level, such as infrastructure or skills development, would be supported in the form of back-toback loans borrowed on the capital markets or from financial institutions and guaranteed by the EU budget.232 In addition, the loans should be coupled with a ‘voluntarily’ provided grant component by all eurozone Member States based on their equivalent to a share of monetary income – the so-called ‘seignorage profits’ from the Eurosystem.233 The Commission would be 227 European Parliament, ‘Report on budgetary capacity for the Eurozone’ (2015/2344(INI)) (2017): asymmetric shocks are ‘situations whereby an economic event affects one economy more than another, for instance when demand collapses in one specific Member State and not in the others following an external shock beyond the influence of a Member State’. Symmetric shocks may be introduced by variations in oil prices in the eurozone countries. 228 Ibid., 5. 229 Van Rompuy, Towards A Genuine Economic And Monetary Union, (2012), 10. 230 European Commission, ‘Reflection paper on the deepening of the economic and monetary union of 31 May 2017’ COM (2017) 291, 25; Miroslav Beblavý and Karolien Lenaerts, Feasibility and Added Value of a European Unemployment Benefits Scheme (2017), 55. As a reinsurance fund for national unemployment schemes it would help countries to emerge from the crisis faster and stronger. It would address short-term unemployment, which reflects the cyclical developments of national economic downturns. Via an EU Fund budgetary transfers to the Member States would occur and support the national unemployment benefit system. The subsequent use of the transfer would be in accordance with the national unemployment laws. 231 European Commission, ‘Proposal for a Regulation on the establishment of a European Investment Stabilisation Function’ COM (2018) 387. 232 European Commission, Annex to ‘Communication on A Modern Budget for a Union that Protects, Empowers and Defends – The Multiannual Financial Framework for 2021–2027’ COM (2018) 321. 233 European Commission, ‘Communication A new, modern Multiannual Financial Framework for a European Union that delivers efficiently on its priorities post-2020’ COM (2018) 98: ‘Seignorage is the term used to describe the revenue which central banks and governments accrue from issuing money. Since monetary income of the European Central Bank for the issuance of the euro is directly linked to the Economic and Monetary Union, it could be considered as a possible new Own Resource. An amount corresponding to a share of the net profits arising from national central banks’ shares in eurozone monetary income paid out to national treasuries, could be made available for the EU budget as a form of national contribution. A similar logic was applied in respect of the income generated by the European Central Bank and the national central banks from accumulated Greek Government bonds when in 2012 Eurogroup Ministers agreed on a transfer of the equivalent of the income generated by the Eurosystem holding (European Central Bank and national central banks) of Greek government bonds to Greece. Depending on the percentage applied, estimated revenues from seignorage could range between EUR 10.5 billion (10%) and EUR 56 billion (50%) over seven years.’ The use of the seignorage for a stabilising fund was already suggested by Fritz Breuss, ‘Flexibility, fiscal policy and stability and growth pact’ in ECSA (ed), Fourth ECSA-World Conference –The European Union and the EURO: economic, institutional and international aspects (Luxembourg, European Commission, 2000), 98–126.

EMU Integration against the Backdrop of EU Law and Jurisprudence  61 empowered to take the principal decisions as long as no objection is expressed by the delegating authorities, the European Parliament or the Council within three months after notification. Even though such revocation is possible, it would not affect the validity of any delegated acts already in force.234 This validity is problematic in terms of ensuring democratic control over any EU act, which must be ensured by the delegating institutions.235 A European Rainy Day Fund as insurance mechanism may be established by the Member States outside of the EU framework, just as the ESM, and would accumulate revenues from ­eurozone members regularly in good times and make transfers to countries when they experience negative shocks.236 If such a rainy day fund would work as an insurance mechanism it would relate directly to the Member States’ contributions.237 The Treaties so far only allow for the creation of a stability mechanism in very limited circumstances, as was with the ESM. Accordingly, specific conditions must be attached, as is done under the ESM framework.238 Another mechanism was considered at EU level to tackle high levels of short-term unemployment caused by a crisis.239 A fully-fledged European Basic Unemployment Benefit Scheme (EUBS) should focus on the micro-economic level and directly linked to the labour market developments.240 A European Fund, outside of the EU budget would draw contributions from monthly social security payments and disburse benefits to individuals according to the EUBS law.241 Short-term unemployed should receive support directly from an EU Fund. This system would complement or partially substitute the national unemployment insurance systems.242 The more recent suggestion focused on the macroeconomic level by referring to an automatic shock absorption mechanism in the form of a reinsurance-type system. Thereby, temporary financial transfers to Member States affected by economic negative shocks shall support the national unemployment systems to tackle cyclical short-term unemployment caused by economic recession with major effects on the national labour markets. It would function as an emergency instrument with the aim of helping eurozone countries emerge from a crisis faster and stronger.243 Drawing inspiration from the European Globalisation Adjustment Fund244 and the European Union Solidarity Fund,245 which allow prompt financial support from the EU budget to 234 Art 6 European Commission, ‘Proposal for a Regulation on the establishment of a European Investment Stabilisation Function’ COM (2018) 387. 235 Art 290 (2) TFEU; Art 290 AEUV in H von der Groeben, J Schwarze, A Hatje (eds), Europäisches Unionsrecht: Vertrag über die Europäische Union; Vertrag über die Arbeitsweise der Europäischen Union; Charta der Grundrechte der Europäischen Union (Baden-Baden, Nomos, 2015), para 32–38. 236 Céline Allard, Petya Koeva Brooks, John C Bluedorn, Fabian Bornhorst, Katharine Christopherson, Franziska Ohnsorge, Tigran Poghosyan and an IMF Staff Team, Toward a Fiscal Union for the Euro Area (IMF, 2013) 19–20. 237 European Parliament, ‘Report on budgetary capacity for the Eurozone’ (2015/2344(INI)). 238 CJEU, Case C-370/12 Pringle, paras 130, 136. 239 European Commission, ‘Reflection paper on the deepening of the economic and monetary union of 31 May 2017’ COM (2017) 291, 25. This was first emphasised in the Marjolin Report in 1975, European Commission Report of the Study Group, ‘Economic and Monetary Union 1980’ (Brussels, European Commission, 1975), 34f. 240 Sebastian Dullien, ‘Improving Economic Stability: What the Euro Area can learn from the United States’ Unemployment Insurance’ (2007) 11 Working Paper Stiftung Wissenschaft and Politik; Sebastian Dullien, ‘Eine Arbeitslosenversicherung für die Eurozone: Ein Vorschlag zur Stabilisierung divergierender Wirtschaftsentwicklungen’ (2008) 01 SWP-Studie. 241 It could be financed by a payroll tax of 2% of wage income and income limits may apply. Sebastian Dullien, Daniela Schwarzer, ‘Bringing Macroeconomics into the EU Budget Debate: Why and How?’ (2009) 47(1), JCMS, 153–74. 242 Four Presidents’ Report, ‘Towards a genuine economic and monetary union’ (2012), 11; European Commission, ‘Blueprint for a deep and genuine economic and monetary union – Launching a European Debate’ COM (2012) 777, 32. 243 European Commission, ‘Reflection paper on the deepening of the economic and monetary union of 31 May 2017’ COM (2017) 291, 25. 244 Regulation (EU) No 1309/2013 of the European Parliament and of the Council of 17 December 2013 on the European Globalisation Adjustment Fund (2014–2020) and repealing Regulation (EC) No 1927/2006, [2013] OJ L347/855–64. 245 Regulation (EU) No 661/2014 of the European Parliament and of the Council of 15 May 2014 amending Council Regulation (EC) No 2012/2002 establishing the European Union Solidarity Fund [2014] OJ L189.

62  Elisabeth Lentsch people affected by the global and financial crisis or major natural disasters. However, the mobilisation of funds would not be automatic but taken by a decision of the Council and the European Parliament.246 Furthermore, since the EU budget resources are limited, other forms of finances are required in order to meet the aimed objective of stabilising effect.

E.  Eurozone Fiscal Capacity The financial resources under the EU budget and related budgetary instruments played an increased role in achieving stability, growth and convergence in the EU during and after the crisis. Thereby, the five European Structural and Investment Funds, and in particular, the European Fund for Strategic Investments – the so-called Juncker Plan – channelled EU funding to specific projects in the Member States.247 The suggested convergence tools as well as stabilisation mechanisms for the EMU led to the crucial question of financing.248 Thus, the call to establish a proper fiscal capacity of the EMU emerged.249 An essential impediment to that call is that the EU is not built as a federal state.250 It does not enjoy powerful fiscal capacity, including the right to raise taxes, which would allow for distributional policies or to address macroeconomic instability by countercyclical properties.251 According to Article 311 TFEU, ‘The Union shall provide itself with the means necessary to attain its objectives and carry through its policies.’ However, the EU budget is extremely limited – amounting to approximately only 2 per cent of the total public expenditure of its Member States. The substance of economic and fiscal policies containing financial ‘firepower’ remains in the hands of the Member States. Debates on increasing financial contributions for the achievement of E(M)U objectives252 as well as the introduction of new sources of resources are ongoing at public and academic level.253 The difficulty in amending the EU’s own resource system lies in particular in the legal and, thus, political requirement of a unanimous Council decision and ratification by all Member States.254 The limited capacity of the EU budget has previously led to the establishment of resource pools outside of the EU framework that are still dedicated to the attainment of EU objectives. The outstanding examples are the ESM and its predecessor the EFSF, funded by direct Member States’ contributions. Within the Banking Union, the Single Resolution Fund, which is established under

246 Art 15 Regulation (EU) No 1309/2013 of the European Parliament and of the Council of 17 December 2013 on the European Globalisation Adjustment Fund (2014-2020) and repealing Regulation (EC) No 1927/2006, [2013] OJ L347/855–64. 247 European Commission, ‘Communication on a European Minister of Economy and Finance’ COM (2017) 823, 4. 248 European Commission, ‘Communication on new budgetary instruments for a stable euro area within the Union framework’ COM (2017) 822; Breuss, ‘Flexibility, fiscal policy and stability and growth pact’, 98–126; Agnes Bénassy-Quéré, Euro area fiscal stance: definition, implementation and democratic legitimacy: Study for the European Parliament (Strasbourg, European Parliament, 2016). 249 Van Rompuy, Towards a Genuine Economic and Monetary Union: Interim Report (2012), 5. 250 Even if there is a case for calling the EU a federal system. However, regarding economic policy, it is embryonic, at best. 251 Leino-Sandberg and Saarenheimo, ‘A fiscal union for the EMU?’ (ADEMU A Dynamic Economic and Monetary Union, 2018). 252 Poiares Maduro, ‘A New Governance for the European Union and the Euro: Democracy and Justice’ (2012) 11 Robert Schuman Centre for Advanced Studies Policy Paper, 11: an increase to at least 3% of (the total of all member states’) GDP of the EU budget would provide sufficient means to address the asymmetries affecting the functioning of the monetary union. 253 Monti, et al, Future Financing of the EU, (2016), 8. 254 Art 311 (3) TFEU; Art 2 Decision 2014/335/EU, Euratom of 26 May 2014 on the system of own resources of the European Union, OJ L168/105.

EMU Integration against the Backdrop of EU Law and Jurisprudence  63 EU law, is also funded by contributions from financial institutions based on an intergovernmental agreement. This, according to the CJEU, in principle is compatible with EU law, as long as no exclusive competence of the EU exists and the shared competence is not yet exercised.255 While establishing resource pools under the EU framework but outside of the EU budget may be legal, they may not substitute the latter. They can only marginally contribute to the financing of the EU’s policies, compared to the overall EU budget.256 This limitation is imposed by the principle of unity, which prohibits setting up a separate budget next to the EU budget. Accordingly, all items of revenue and expenditure must be covered by a single EU budget.257 In addition, under the principle of universality, the EU’s revenues may not be earmarked for specific items to guarantee the fulfilment of priorities of EU policies. That is, revenues and expenditures are legally treated separately.258 An exceptional list of revenues, and the option for further assigned revenues to be grounded in a basic adopted EU legal act, are explicitly outlined in the financial rules.259 The Commission proposed the inclusion of financial contributions from Member States, third countries and bodies not set up under the EU Treaties to certain actions or programmes financed by the EU as well as to supplementary research and technological development programmes.260 This proposal relates to budgets of administrative structures set up by one or more institutions to perform specific cross-cutting tasks, having separate legal personality. However, even though they are detached from the general budget and partially funded with own revenues, they still work at the expense and under the rules of the general budget.261 As for the EMF, as an autonomous legal entity, it would be financed by its own financial resources, which consist of the Member States’

255 CJEU, Case C-316/91 EP v Council, ECLI:EU:C:1994:76, para 26; René Repasi, Legal Options and Limits for the Establishment of a European Unemployment Benefit Scheme (Brussels, European Commission, 2017) 52. 256 Exemplary are those listed in Art 21 of the financial rules. Roland Bieber ‘Article 310’ in H von der Groeben, J Schwarze, A Hatje (eds), Europäisches Unionsrecht: Vertrag über die Europäische Union; Vertrag über die Arbeitsweise der Europäischen Union; Charta der Grundrechte der Europäischen Union (Baden-Baden, Nomos, 2015) para. 41: eg, revenues and incomes from sales, lettings, fines, insurance payments, capital yields, and financial contributions from foundations, subsidies, gifts and bequests. In addition, taxes of EU employees. 257 Matthias Niedobitek, ‘Artikel 310 AEUV’ in R Streinz and M Niedobitek (eds), AEUV (2018), paras 17–19; Siegfried Magiera, ‘Article 310’ in E Grabitz, M Hilf, M Nettesheim (eds), Das Recht der Europäischen Union (2017), para 24; Gerhard Vogt, ‘Staatliches Haushaltsrecht’ in F Klein (ed), Lehrbuch des öffentlichen Finanzrechts (München, Luchterhand, 1987) 117ff. 258 Art 6 Decision 2014/335/EU, Euratom of 26 May 2014 on the system of own resources of the European Union, OJ L168/105, Bieber, ‘Article 310’ in H von der Groeben, J Schwarze, A Hatje (eds), Europäisches Unionsrecht: Vertrag über die Europäische Union; Vertrag über die Arbeitsweise der Europäischen Union; Charta der Grundrechte der Europäischen Union (Baden-Baden, Nomos, 2015), para 25. 259 Art 21 Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002, OJ L298, 26.10.2012, 1–96. 260 Art 20 (2) lit a European Commission, ‘Proposal for a Regulation on the financial rules applicable to the general budget of the Union and amending Regulation (EC) No 2012/2002, Regulations (EU) No 1296/2013, (EU) 1301/2013, (EU) No 1303/2013, EU No 1304/2013, (EU) No 1305/2013, (EU) No 1306/2013, (EU) No 1307/2013, (EU) No 1308/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014,(EU) No 283/2014, (EU) No 652/2014 of the European Parliament and of the Council and Decision No 541/2014/EU of the European Parliament and of the Council’ COM (2016) 605: external assigned revenue shall constitute: financial contributions from Member States, third countries and bodies not set up under the TFEU and the Euratom Treaty to certain actions or programmes financed by the Union as well as to supplementary research and technological development programmes, and managed by the Commission on their behalf. 261 Art 195 para 3 Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002, [2012] OJ L298/1–96: Parts One on Common Provisions and Part Three on Final Provisions shall apply to the operation of the European offices, except as otherwise provided in this Title. Bieber, ‘Article 310’ in H von der Groeben, J Schwarze, A Hatje (eds), Europäisches Unionsrecht: Vertrag über die Europäische Union; Vertrag über die Arbeitsweise der Europäischen Union; Charta der Grundrechte der Europäischen Union (2015), para 18.

64  Elisabeth Lentsch contributions outside of the EU budgetary framework. These resources amount to 700 billion euros of authorised capital, 80 billion of which would be paid-in capital. The use of Article 352 TFEU as legal basis for achieving the EU’s objectives must however not contravene the financial Treaty provisions. Thus, the principles discussed above must not be circumvented and violated. Additional financing opportunities in the form of EU borrowing capacity on the financial markets and pursuing lending activities to Member States are being debated by the Commission. However, the Treaties or the own resources decision do not foresee such tools. The adoption of such options as own resource must comply with the strict procedures of Article 311 TFEU.262 In protecting the principle of equilibrium, which requires for the revenue and expenditure shown in the budget to be balanced, the financial rules prohibit the EU and its bodies from raising loans within the framework of the budget.263 A notable exception is the competence of the EIB, which for the most part borrows money on the markets to finance investment projects in Member States by providing favourable credits, which have to be fully paid back. Furthermore, the Treaties foresee options for borrowing at the capital markets under specifically outlined legal provisions.264 Article 143 TFEU sets explicit limits on the EU budgetary resources to serve as guarantees for respective lending activities. Important in this regard is the obligation to record the guarantees for borrowing-and-lending operations entered into by the EU to ensure the principle of unity and accuracy.265 The Commission’s proposal on new financial rules outlines the option for EU borrowing on the capital markets or from financial institutions to provide financial assistance to Member States.266 Article 310 TFEU provides that the revenue and expenditure shown in the EU budget shall be balanced. Thus, no act that is likely to have appreciable implications for the budget shall be adopted without being financially backed by the budget and the multiannual financial framework. Accordingly, the budgetary amount of guarantees for borrowing and lending operations entered by the EU shall be recorded in the budget, in particular the MFF.267 Thus, any further function of the EU budget as a guarantee for investments implies the necessary change of the MFF regulation by unanimity.

F.  Concluding Remarks The EU institutions fuelled the debate on the EMU reforms by issuing pertinent initiatives and proposals. Fiscal discipline and its implementation certainly have been the leading mantra during 262 Peter Selmer, ‘Die Anleihekompetenzen der Europäischen Gemeinschaften’ in K Böckstiegel, P Selmer and V Götz (eds), Finanzverfassung der Europäischen Gemeinschaften, Beilegung internationaler Rechtsstreitigkeiten: Heidelberger Kolloquium aus Anlass des 70. Geburtstages von Günther Jaenicke (Köln, Heymans, 1984) 48f; Roland Scheibe, Die Anleihekompetenzen der Gemeinschaftsorgane nach dem EWG-Vertrag: Zu den Möglichkeiten und Grenzen der Kreditfinanzierung der EWG sowie zur Finanzverfassung der EWG, zugleich ein Beitrag zur -Allgemeinen Ermächtigungsklausel- des Art. 235 EWGV (Baden-Baden, Nomos, 1988) 235f. 263 Art 17 (2) ibid. 264 Arts 122 (2) and 143 TFEU. 265 Arts 7, 49 (1) lit d ibid. 266 Art 213 European Commission, ‘Proposal for a Regulation on the financial rules applicable to the general budget of the Union and amending Regulation (EC) No 2012/2002, Regulations (EU) No 1296/2013, (EU) 1301/2013, (EU) No 1303/2013, EU No 1304/2013, (EU) No 1305/2013, (EU) No 1306/2013, (EU) No 1307/2013, (EU) No 1308/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014,(EU) No 283/2014, (EU) No 652/2014 of the European Parliament and of the Council and Decision No 541/2014/EU of the European Parliament and of the Council’ COM (2016) 605. 267 Art 7 (2) Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002, [2012] OJ L298/1–96.

EMU Integration against the Backdrop of EU Law and Jurisprudence  65 and after the crisis. Thereby, the plans and measures for the EU fiscal governance regime aim at combining decentralised and centralised approaches. On the one hand, national ownership for fiscal discipline and planning is enhanced by the creation of independent national fiscal institutions and increased interlinkage of national rules with the EU framework. The EU pushes for more unity of the eurozone Member States by promoting a Fiscal Union. So far, this has covered the promotion of a eurozone fiscal stance as well as the creation of bodies dedicated to the eurozone’s economic and fiscal policy field, such as a European Fiscal Board or a European Minister of Economy and Finance. Other options for further sovereignty sharing in the field of fiscal policies were not officially considered. These options touch upon sensitive fields of national sovereignty and require amendments to the EU and national constitutional frameworks. Currently, such proposals appear to be cautiously avoided. The solvency problems of various Member States led to measures and mechanisms adopted to confront their severe financing problems. What is proposed is developing a proper eurozone fiscal capacity providing for tools and resources to tackle temporary macroeconomic shocks in the eurozone. The design and scope of respective competence-sharing at the supranational level for fiscal policies is very controversial. The same is true for a joint issuance or guarantee of governmental debt to tackle the high debt levels in some eurozone Member States, which was removed from the official agenda due to the lack of political support. Related proposals touch upon the delicate EU principle of national responsibility for fiscal and economic performance and the no bail-out rule, which includes the reactions, both positive and negative, of the financial markets. However, while the common rules point to fiscal responsibility of the Member States, the reform initiatives brought a new dimension of sharing resources to support national efforts in reforming their economic systems. Apart from technical advice, structural reforms have become key for the economic and fiscal surveillance procedures at the EU level and gained importance through the application of emergency rescue mechanisms, such as the ESM. In fact, conducting structural reforms remains subject to political decisions at the national level. Due to the limited competence and effect of the existing tools at the EU level, the attempt is to shift from the ineffective sanction-based approach to a reward-based system. Accordingly, several measures drawing on the EU cohesion policy budget are in the legislative pipeline. Those measures, their scope being limited by the existing Treaty system, will not meet the necessities required for a truly functioning EMU. The overall agenda adopted by the EU institutions’ Presidents explicitly outlines respective limits. In particular a call is made for the creation of European mechanisms for confronting the cyclical divergences caused by asymmetric and symmetric macroeconomic shocks. This call concerns the integration of the intergovernmental ESM as an emergency mechanism into the EU framework as well as the establishment of a macroeconomic stabilisation mechanism that can react before the shocks become severe. The resulting legislative proposal on the EMF exceeds the limits of the EU Treaties. The outlined macroeconomic stabilisation functions may take various forms. As for a proper EU rainy-day fund or a European Unemployment Benefit Scheme, legal as well as procedural limits lower the probability of their introduction. A politically attractive exit strategy thereto may again be turning to intergovernmental agreements. The only promising policy field for creative and a legally defendable solution under the Treaties is again the cohesion policy, on which the Commission based its proposal for a European Investment Protection Scheme. However, a crucial obstacle for its proper functioning is its limited fiscal capacity, which is challenging for any other macroeconomic stabilisation tool within the EU framework. The change of the latter is certainly the most difficult to achieve in the near future due to the high procedural barriers to be surmounted.

66  Elisabeth Lentsch Such measures and mechanisms touch strongly upon the original principle that each Member State is responsible for its own budgetary decisions and remains subject to the market principles, which are supposed to have disciplining effects on the Member States’ fiscal policies. Accordingly, under EU law, the EU or the Member States may not take over liabilities and commitments of any Member State. Exceptions to this rule already exist under the Treaties and were even enhanced and sanctioned by the CJEU jurisprudence after the crisis. At the same time, the credibility of this concept is still challenged. Thus, amendments and clarifications of the EMU underlying principles should go hand in hand with further developments in this regard. Decisive elements of the Financial Union, and in particular the Banking Union, which is being considered key for the functioning of the eurozone, are still pending. These elements concern in principle the agreement on the fiscal backstops provided for by the governments, and involving risk-sharing elements. The proposed linking of the Single Resolution Fund with the EMF sets out a new attempt to enhance the credibility of the Banking Union. The institutional set-up of the EMU is characterised by essential changes in the EU economic governance introduced by recent legislative and political reforms, which were introduced without any Treaty amendments. The planned short and long-term reforms enhance the strengthening of the EU institutions’ powers, in particular that of the Commission. In fact, the ECB became the principal actor in the events of the crisis. There are claims that its new role and position should be reflected through amending the relevant Treaty provisions. The most far-reaching initiative relates to the creation of an ECB counterpart for the economic fields in the function of a European Minister of Economy and Finance. In terms of competences, the initiative to combine the role of Vice-President of the Commission with the role of the Eurogroup’s President is mainly a strong symbolic step into the direction of centralisation of economic and fiscal policy matters. Furthermore, it impacts heavily on the EU institutional architecture by stretching the Treaties’ boundaries. Further reaching ideas for the EMU, such as the creation of a eurozone Treasury and an Economic and Finance Minister with political power in economic and fiscal matters still would need to be elaborated in detail. Thereto, one very challenging aspect of these changes relates to guaranteeing democratic legitimacy and accountability, which is so far protected mainly by the national parliaments and only to a limited degree by the European Parliament. In this light, several proposals from the academia and think-tanks were made that imply essential changes in the institutional legal order.

IV. Conclusion The EU economic governance system has significantly developed since its establishment by the Treaty of Maastricht. The eurozone has undergone several reforms, in particular during and after the euro crisis. The substance of the laws and the institutional set-up of the EU were developed. Furthermore, the use of intergovernmental tools revitalised greatly impacting the EU system as well as the national constitutional frameworks. Of particular importance for legal clarity and security was the jurisprudence of the CJEU and national constitutional courts in this field, which further developed the underlying principles and rules governing the relationship between the Member States and the EU and in particular the EU economic governance framework. Most importantly, even though the legislative and political reforms were introduced without any Treaty amendments and were eventually sanctioned by the relevant courts, they stretched EU and national legal foundations to their utmost boundaries.

EMU Integration against the Backdrop of EU Law and Jurisprudence  67 Consensus exists on the necessity of reforms of the rather weak legal architecture of the EMU, which is reflected in several proposals of EU institutions for a genuine EMU. The push towards centralisation of economic and fiscal matters is obvious. Further centralisation will, however, require amending the EU Treaties and where necessary the Constitutions of Member States. Eventual changes of the EU Treaties will require the unanimous consent of all Member States. Evidently, the resulting veto power for each and every Member State is the biggest obstacle to a substantive reform. At the same time, it is this extremely high hurdle for any change that provokes the temptation to water down, mutate or even circumvent the existing limits. At the national level, the legal systems that were traditionally characterised by openness towards the EU framework were impacted strongly. The motivation of the Member States to resolve the crisis was reflected in the adoption and implementation of EU measures with a strong impact on their fiscal systems and laws. They also introduced various new aspects, such as national fiscal councils or reinforced fiscal discipline rules. Thereby, the EU measures had a considerable impact on the national organisation and control of economic governance in the Member States. The rigidity of the EU Treaty framework, the limited resources of the EU budget and the emergency situation created by the euro crisis pushed the Member States to agree on mechanisms for pooling considerable resources outside of the EU framework. Even though these mechanisms were established as intergovernmental mechanisms, they were strongly linked to the EMU. The financial solidarity mechanisms and the related national actions triggered many controversies with respect to the reforms the Member States had to adopt. These reforms had a great impact on the budgetary prerogative of national parliaments. Even though all reform measures survived constitutional scrutiny, constitutional review bodies used the opportunity to advance the doctrine of the principle of democracy in relation to the budgetary autonomy of parliaments. The generally positive attitude towards the supranational order, which in some Member States covered EMU-related law that is outside the EU framework, was put at stake. In particular, in reaction to the crisis, the concept of national identity and related limits to such became central in the debate. That concept may also become pertinent for preference formation by the current creditor states and negotiation in terms of future integrative steps in EMU. The EMU-induced national measures adopted during the crisis had a decisive impact on some underlying state principles, such as social welfare or internal federalism. The debtor states or those being exposed to the risk of sovereign default or financial illiquidity approved EMU-induced measures even where they led to negatively affecting these constitutional principles. Thus, the time might be ripe to reconsider the use of unanimity in the EMU realm. Alternatives to unanimity have already been discussed. They include the transfer of primary law provisions into secondary legislation (de-constitutionalisation of EMU law) as well as Treaty amendments introducing qualified majority and thereby removing the veto power each Member State enjoys and provide for feasible reform options by majority decision.

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72  Elisabeth Lentsch Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority) amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC, [2010] OJ L331/12. Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority) amending Decision No 716/2009/EC and repealing Commission Decision 2009/79/EC [2010] OJ L331/48 and European Securities and Markets Authority Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority) amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC, [2010] OJ L331/84. Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November 2011 on the effective enforcement of budgetary surveillance in the euro area [2011] OJ L306/1. Regulation (EU) No 1174/2011 of the European Parliament and of the Council of 16 November 2011 on enforcement measures to correct excessive macroeconomic imbalances in the euro area [2011] OJ L306/8. Regulation (EU) No 1175/2011 amending Council Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies [2011] OJ L 306/11. Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances [2011] OJ L 306/25. Regulation (EU) No 1177/2011 of the European Parliament and of the Council of 8 November 2011 amending Regulation (EU) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure [2011] OJ L306/33. Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002, [2002] OJ L298. Regulation (EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the euro area experiencing or threatened with serious difficulties with respect to their financial stability [2013] OJ L140/11. Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area [2013] OJ L140/1. Regulation (EU) No 1309/2013 of the European Parliament and of the Council of 17 December 2013 on the European Globalisation Adjustment Fund (2014-2020) and repealing Regulation (EC) No 1927/2006, [2013] OJ L347. Regulation (EU) 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions [2013] OJ L287/63. Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation) [2014] OJ L141/1. Regulation (EU) No 661/2014 of the European Parliament and of the Council of 15 May 2014 amending Council Regulation (EC) No 2012/2002 establishing the European Union Solidarity Fund. Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010, [2014] OJ L225/1. Regulation (EU) 2017/825 of the European Parliament and of the Council of 17 May 2017 on the establishment of the Structural Reform Support Programme for the period 2017 to 2020 and amending Regulations (EU) No 1303/2013 and (EU) No 1305/2013, [2017] OJ L129/1–16. Repasi R, Limits and opportunities for the ECB in the multi-tier governance (European Parliament, 2013). Repasi R, Legal Options and Limits for the Establishment of a European Unemployment Benefit Scheme (Brussels, European Commission, 2017). Resolution of the European Council on the Stability and Growth Pact. M Ruffert, ‘The European debt crisis and European Union law’ (2011) 48(6) CMLR 1777–1806.

EMU Integration against the Backdrop of EU Law and Jurisprudence  73 R Scheibe, Die Anleihekompetenzen der Gemeinschaftsorgane nach dem EWG-Vertrag: Zu den Möglichkeiten und Grenzen der Kreditfinanzierung der EWG sowie zur Finanzverfassung der EWG, zugleich ein Beitrag zur -Allgemeinen Ermächtigungsklausel- des Art. 235 EWGV (Baden-Baden, Nomos, 1988). M Selmayer, ‘Artikel 127’ in H von der Groeben, J Schwarze, A Hatje (eds.) Europäisches Unionsrecht: Vertrag über die Europäische Union; Vertrag über die Arbeitsweise der Europäischen Union; Charta der Grundrechte der Europäischen Union (Baden-Baden, Nomos, 2015). P Selmer, ‘Die Anleihekompetenzen der Europäischen Gemeinschaften’ in K Böckstiegel, P Selmer and V Götz (eds) Finanzverfassung der Europäischen Gemeinschaften, Beilegung internationaler Rechtsstreiti gkeiten:Heidelberger Kolloquium aus Anlass des 70. Geburtstages von Günther Jaenicke (Köln, Heymans, 1984). Statement of 25 March 2010 of the Heads of State or Government of the euro area and Eurogroup meeting, doc 9417/10. A Steinbach, ‘The Lender of Last Resort in the Eurozone’ (2016) 53 CMLR 361–84. A Steinbach, ‘The Structural Reforms in EU Member States: Exploring Sanction-Based Mechanisms’ (2016) European Journal of Legal Studies 173–210. K Tuori, ‘Is Euro area Monetary Policy a Hidden Transfer Mechanism?’ (2016) ELJ 838–68. K Tuori, K Tuori, The Eurozone crisis: A constitutional analysis (Cambridge, Cambridge University Press, 2014). Van Rompuy, H., Towards a Genuine Economic and Monetary Union: Interim Report (2012). Van Rompuy, H., Towards A Genuine Economic and Monetary Union (2012). G Vogt, ‘Staatliches Haushaltsrecht’ in F Klein (ed) Lehrbuch des öffentlichen Finanzrechts (München, Luchterhand, 1987). P Werner, ‘Report of the Council and the Commission on the realisation by stages of economic and monetary union in the Community’ (1970). W Wessels, The European Council, The European Union series (Hampshire, Palgrave Macmillan Education, 2016). K-P Wojcik, ‘Artikel 63’ in H von der Groeben, J Schwarze, A Hatje (eds) Vertrag über die Europäische Union – Vertrag über die Arbeitsweise der Europäischen Union – Charta der Grundrechte der Europäischen Union (Baden-Baden, Nomos, 2015). K-P Wojcik, ‘Bail-in in the Banking Union’ (2016) 53(1) CMLR 91–138. C Wutscher, ‘Zur unionsrechtlichen Zulässigkeit von Staatsanleihenkäufen durch die EZB’ (2015) 19 ZfRV 155. C Zilioli, M Selmayer, ‘The European Central Bank: An independent specialised organization of Community Law’ (2000) 37 CMLR 591–644.

Court Cases CJEU, Case T-541/10 and T-215/11 ADEDY, EU:T:2012:626. CJEU, Case C-27/04 Commission v Council, ECLI:EU:C:2004:436. CJEU, Case C-316/91 EP v Council, ECLI:EU:C:1994:76. CJEU, Case C-62/14 Gauweiler, ECLI:EU:C:2015:400. CJEU, Case T-289/13 Ledra Advertising Ltd, ECLI:EU:T2014:981. CJEU, Case T-327/13 Mallis and Malli, ECLI:EU:T:2014:909. CJEU, Case C- 9/56 and 10/56 Meroni ECLI:EU:C:1958:7. CJEU, Case C-11/00 Olaf, ECR 1-07147. CJEU, Case C-370/12 Pringle ECLI:EU:C:2012:756. CJEU, Case C-270/12 UK/EP, ECLI:EU:C:2014:18. CJEU, Case C-493/ 17 Weiss, ECLI:EU:C:2018:1000.

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3 Bulgaria EMU Integration and the Bulgarian Constitution: ‘Missing Constitution’ or EU Friendliness and Open Statehood Masquerading Implicit Sovereigntist Strategies in the Context of Multilevel Constitutional Games? MARTIN BELOV

Abstract: This chapter is devoted to the constitutional foundations of Bulgarian membership in the EMU. It systematically demonstrates the overtly pro-European stance of the Bulgarian Constitution existing in parallel to partially concealed nationalist protectionism of the supremacy of the 1991 Constitution and the control of the Bulgarian political elite over the crucial points of intersection between the domestic and the EU constitutional order. Bulgaria’s 1991 Constitution is defined as EU-friendly, but EMU-insensitive. The EMU insensitiveness of both the 1991 Constitution and the entire Bulgarian constitutional order finds expression in the rather austere, laconic or even missing provisions on the EMU. Indeed, it would not be an exaggeration to suggest that the EMU is almost part of a ‘missing constitution’ in Bulgaria. In fact, the constitutional standing of the EMU is fully covered and subordinated to the general rules concerning Bulgarian membership in the EU. This is due to the fact that Bulgaria is not a member of the eurozone. Moreover, it has not experienced severe troubles during the financial crisis and has not been subjected to austerity measures inducing and triggering either constitutional or massive legal reform. This is the reason for the lack of proper constitutionalist discussion on the constitutional implications of the Bulgarian EMU membership and for the non-existent case law of the Constitutional Court or the two supreme courts – the Supreme Administrative Court and the Supreme Court of Cassation – on EMU issues. Accordingly the EMU issues in the Bulgarian constitutional order are conceptualised in the chapter through an emphasis on the point of intersection of three phenomena which are somehow related to the EMU but do not coincide with it. These are the constitutional foundations of Bulgarian EU membership, the Bulgarian financial constitution and the strategic and tactical use of the EU as bearer of normative ideals and normative ideas with reformist potential by the Bulgarian political elite. There are two main aspects of Bulgaria’s EMU membership which may be interesting from comparative constitutional point of view. First, Bulgaria is a relatively rare example of a

76  Martin Belov successful monetary board, which has been introduced as a result of a deliberate political decision to achieve geopolitical and macroeconomic stability, at the price of entrenched moderate poverty. Eventually, the monetary board should be removed. Thus, the introduction of the euro and joining the eurozone are perceived as positive options for removing the monetary board. This is one of the reasons for the predominantly positive attitude towards the euro, which contrasts with its perception and image in many south European states. Second, EU integration in general and the EMU and the eurozone integration in particular are key strategies for democratisation and modernisation in Bulgaria. They are also key strategies for integrating the Bulgarian elite in the emerging schemes of supranational and global constitutionalism and global governance. Both key topics are thoroughly analysed in this chapter. Key words: constitutional culture, constitutional nihilism, constitutional fetishism, legal transplantation, constitutional reform, constitutional amendment, open statehood, globalisation, constitutional axiology, Europeanisation, democratisation, rule of law, sovereignty, transfer of sovereignty, global constitutionalism, supranational constitutionalism, invented tradition, constitutional foundations of capitalism, financial constitution, financial power, financial constitutionalism, constitutional adjustment, flat rate income tax, monetary board, primacy of EU law, constitutional supremacy, federalism, EU integration clause, entrenched clause, counter-limits, constitutional identity, judicial activism, parliamentary reserve.

I.  Main Characteristics of the National Constitutional System and Constitutional Culture Bulgaria is a continental European legal order. It has been shaped by the influence of different political power centres and constitutional traditions with the predominance of Western European models. Its 1991 Constitution provides for a hybrid parliamentary republic and unitary state. It is structured on the basis of the principles of popular sovereignty, separation of powers, rule of law, democracy, political pluralism and welfare state. These principles are typical for the constitutional axiology of modern European constitutionalism. Hence, the current Bulgarian Constitution has adopted the highest standards related to constitutional axiology available at the end of the ­twentieth century in Western European constitutionalism. There are several elements forming the Bulgarian constitutional tradition, which have been provided by the current and preceding Bulgarian constitutions. These are the unitary form of territorial distribution of power, the unicameral parliament,1 the civic and political rights and the continental European type of judiciary disempowered from the competence to adopt precedent decisions. Building upon this tradition, the 1991 Constitution introduces also several very important institutional novelties. For the first time in Bulgarian history, the Constitution provides for a parliamentary republic, a president and a vice president, constitutional control (general and specific by the Bulgarian Constitutional Court), a Supreme Judicial Council as a special body for governing the judiciary, a distinct system of administrative courts and an ombudsman.

1 See also Mihail Vatsov, Polina Vakleva, ‘The shadow of bicameralism in a unicameral State: the curious case of Bulgaria’ in R Albert, A Baraggia, and C Fasone (eds) Constitutional Reform of National Legislatures: Bicameralism under Pressure (Cheltenham, Edward Elgar, 2019 (forthcoming)).

Bulgaria  77 Naturally, the 1991 Constitution is also the first Bulgarian constitution containing an EU integration clause as well as provisions related to EU membership. The integration clause has been introduced in 2005. Last but not least, the 1991 Constitution constitutionalises, although incrementally, key ­institutions of the financial power – the Bulgarian National Bank and the Court of Auditors. Indeed, some provisions regarding the Bulgarian National Bank were introduced also after the fall of the communist regime in the old Soviet-type 1971 Constitution. This was done in 1990 in the course of a deliberate transition towards the establishment of the constitutional foundations of the public finances as a sphere of socio-legal relations with increasing importance and ­independence from the ‘classical’ state powers. Bulgaria’s 1991 Constitution can be defined as a predominantly successful and creative attempt at democratisation and establishment of a rule of law society, which has had rather weak democratic traditions. The Bulgarian Constitution creates a clear power centre in the figure of the prime minister. The prime minister leads an informal power unit composed of the Council of Ministers and its parliamentary majority.2 However, it maintains the power balance with the establishment of important independent veto players – the moderately weak president, and a strong Constitutional Court. Furthermore, the 1991 Constitution grants important rights to the opposition (eg the right to seise the Constitutional Court, the right to introduce a vote of non-confidence under relatively easy procedural conditions, different increased rights related to parliamentary control, etc). Last but not least, it makes possible the accomplishment of direct, participatory and deliberative democracy3 on a predominantly representative and parliamentary republican playground. The radical reform brought to life by the 1991 Constitution has been exposed in the political reality to the interference of success and failure factors of this constitutional experiment with parliamentarism and democracy. The predominant part of the Bulgarian society greatly desired its reintegration in Europe, conceived as the most important civilisation model and driving force for modernisation in Bulgaria.4 Key stakeholders in the political elite (both late communist and early post-communist) were convinced that democratisation was inevitable. They believed that it is a necessary (although in their view perhaps instrumental) prerequisite for Europeanisation. Europeanisation was perceived as the only way to achieve economic prosperity and to exit the political isolation and civilisation deadlock in which Bulgaria was stuck with the disintegration of the Soviet communist bloc. Moreover, the central figures in the Bulgarian political elite were well informed as to the general geopolitical drive for entering a new phase in the world d ­ evelopment – the neo-liberal globalisation. That is why they actively contributed to the deconstruction of the communist state and for the integration of Bulgaria in different forms of globalisation and later on – of supranational and global constitutionalism and global governance. In that regard, the political will and the currently predominant desire for integration of Bulgaria in the eurozone should be perceived as a continuation of this general tendency for inclusion. This tendency relates in particular to the inclusion of the state in (1) the institutionalised manifestations of the ‘West’ and of ‘Europe’ as geopolitical power centres and civilisation models and (2) the emerging supranational and global constitutionalism.

2 For this single power unit see Vasil Kirov, The Public Power (Sofia, Ciela, 2004) (in Bulgarian) 151ff. 3 See Martin Belov, Citizens’ Participation in the Political Process. Constitutional Foundations (Sofia, Sibi, 2010) (in Bulgarian) 1–192. 4 See Martin Belov, ‘The idea of “Europe” as a factor in the Building of the Bulgarian Legal Identity’ (2017) 8(1) Romanian Journal of Comparative Law.

78  Martin Belov Nevertheless, there have also been important impediments for the introduction of democracy and rule of law in Bulgaria. Parts of the old elite were obstructing the transition to the new constitutional model due to ideological or geopolitical reasons or just because they believed that they will lose from the Europeanisation and democratisation processes. Indeed, alternative versions of constitutional design were duly suppressed on the edge of constitutional and political transition. Clear evidence is the fact that all constitutional projects, which were introduced in the VII Grand National Assembly in 1990–91, provided for more or less principally similar constitutional designs. For example, the parliamentary-republican character of the state and the unitary form of territorial distribution of power as well as the main constitutional principles (with the exception of the welfare state) were never in question. However, some political and economic actors tried to instrumentally misuse the 1991 Constitution, to postpone reforms and to retain economic and political power. Last but not least, non-negligible segments of Bulgarian society were not prepared for socio-political polycentrism, democracy, rule of law and, especially, capitalism. They were either accustomed to authoritarianism, or perceived democracy and its economic basis – the market economy – as a threat to their social standing. Later on, in the course of establishing capitalism and the market economy, some parts of the Bulgarian society either objectively became victims of this transition or started to perceive themselves as such. That is why the modernisation and democratisation of Bulgaria on both state (institutional) and societal (socio-legal) level had to be justified and safeguarded. The new constitutional model and the radical socio-political transition of the Bulgarian society from authoritarianism to democracy have been legitimised by virtue of two main constitutional-political strategies and narratives. The first one is the presumed restoration of Bulgarian democratic traditions from the ­pre-communist period (1879–1947). In fact, Bulgaria never had a durable and visible democratic tradition. The history of the 1879 Tarnovo Constitution, itself providing for constitutional monarchy, has been deeply marked by different forms of authoritarianism, with brief periods of façade democracy or attempts at establishing more civilised and polycentric socio-political equilibrium. Thus, the ‘democratic past’ has been in fact predominantly an ‘invented tradition’,5 serving a legitimation function for the establishment of democracy, parliamentarianism and rule of law in post-communist Bulgaria. Europeanisation is the second strategy for democratisation and establishment of rule of law. Europe in its different manifestations, eg as EU, Council of Europe, socio-legal cultural space and leading European jurisdictions, has served as key normative ideology for modernisation in Bulgaria.6 More precisely, the 1991 Constitution has been deeply inspired by European constitutional axiology and institutional design at both macro and micro levels.

5 See Eric Hobsbawm, Terence Ranger, The Invention of Traditions (Cambridge, Cambridge University Press, 1983); Diana Mishkova, ‘Domesticating Modernity: Transfer of Ideologies and Institutions in Southeastern Europe’ in M Stolleis (ed), Konflikt und Koexistenz. Die Rechtsordnungen Südosteuropas im 19. und 20. Jahrhundert. Band 1: Rumänien, Bulgarien, Griechenland (Frankfurt am Main, Vittorio Klostermann Verlag, 2015) 723–55. 6 See Martin Belov, ‘The idea of “Europe” as a factor in the Building of the Bulgarian Legal Identity’. For the concept of normative ideology see Martin Belov, ‘The Ideological Heritage of Magna Charta and Its Reception in the Bulgarian Constitutionalism’ in D Valchev, P Panayotov, S Groysman, K Manov (eds) Scientific Readings in Honour of Venelin Ganev and Nikola Dolapchiev (Sofia, St Kliment Ohridski University Press, 2017) (in Bulgarian).

Bulgaria  79

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments The 1991 Constitution is Euro-friendly. It has been adopted in an age of accelerating globalisation and in the context of Euro-optimism7 gaining momentum on the eve of establishment of the EU by virtue of the Treaty of Maastricht. Indeed, in 1990–91 when the 1991 Constitution was adopted the EU membership perspective was still rather vague for Bulgaria. However, it was adopted in light of the increasingly globalised world with forms of supranational cooperation and integration gaining momentum. Thus, the 1991 Constitution provides the necessary preconditions for open statehood8 and international cooperation (Article 4(3), Article 5(4) and Article 85 of the Constitution) and follows the latest achievements in global human rights civilisation (Chapter II of the Constitution). This includes the constitutional foundations for EU integration, which became imminent in 2005 with prospective Bulgarian EU membership. Thereby, its institutional design on external power was upgraded and further developed. This is due to the fact that the constitutional provisions regulating Bulgaria’s actions on the international plane have been supplemented and upgraded with constitutional provisions on EU membership. The legal foundations of the Bulgarian EU membership are provided by Article 4(3), paragraph 3, Article 22(1), Article 42(3), Article 85(1)(9) and 85(2) and Article 105(3)–(4) of the Constitution. These provisions were adopted by the National Assembly and not by the Grand National Assembly because, according to Decision No 3 of 2004 of the Constitutional Court, they do not fall within the scope of the entrenched clause of Article 158 of the Constitution. There has in fact been no real debate on this issue in either political or academic discourse. However, no recourse to EMU membership was made. The Bulgarian constitutional order does not treat EMU issues as substantially and genuinely constitutional issues. From a constitutional viewpoint they are merged with and brought under the general category of EU issues or form part of the general constitutional model of the financial power. The only institutional provisions related to financial constitutionalism concern some aspects of the constitutional standing of the Bulgarian National Bank (Article 84(8) of the Constitution) and the Court of Auditors (Article 91 of the Constitution). The constitutional foundations of the Bulgarian participation in the EMU comprise two main sets of constitutional law provisions. The first one includes the general constitutional provisions related to EU membership. In that regard, the constitutional foundations of EMU membership of Bulgaria have to be conceived either as a largely underdeveloped element and aspect of the EU membership, or as a part of a ‘missing constitution’. The latter concerns the constitutional design of the financial power in Bulgaria. The 1991 Constitution provides for principles and institutional design of the public finance management which can metaphorically be defined as ‘financial constitution’. However, it does not establish any principles, guidelines or institutional design directly related to the EMU. Indeed, both the Bulgarian political elite and Bulgarian citizens have traditionally been, and remain, very EU-friendly. The integration of Bulgaria in the Council of Europe and in the EU

7 See Martin Belov, ‘Constitutional Reflection of the Global Governance – Variations of Principle Issues in the Contemporary Bulgarian Constitutionalism’ in M Novkirishka (ed) Theo Noster. Digest in Honour of Theodor Piperkov (Sofia, St Kliment Ohridski University Press, 2014) (in Bulgarian) 275–90. 8 See Martin Belov, ‘The Opening of the Constitutional Order of Democracy in Transition Towards Supranational Constitutionalism: The Bulgarian Case’ in B Fekete, F Gardos-Orosz (eds) Central and Eastern European Socio-Political and Legal Transition Revisited (Frankfurt am Main, Peter Lang, 2017) 213–31.

80  Martin Belov was the main driving force for democratisation and modernisation during the decades after the fall of communism. In that regard, the eventual joining of the country in the eurozone and the adoption of the euro seems to be part of this general positive attitude towards Europe as key normative ideology forming the contemporary Bulgarian constitutional culture and dominating constitutional politics. However, it should be taken into account that the, formally unquestionable, adherence to standards and policies external to the society and imposed from above by a power centre has been a key survival and adjustment strategy for both Bulgarian society and the Bulgarian political elite for centuries. Hence, it should be seen whether the formal adjustment to the EMU criteria is indeed paralleled by adequate, substantial and irreversible socio-political developments. In fact, this seems to be one of the main reasons for the rather sceptical attitude and passive response of the EU institutions to the demands of the Bulgarian government to immediately start the procedure for adoption of the euro, joining the eurozone and the banking union. Bulgaria is politically stable. It has low levels of public debt, a low budget deficit, stable public finances, sufficient rating credibility and permanent, albeit slow, GDP growth. Bulgaria is one of the rare examples of a well-functioning monetary board, which has produced since its introduction in 1997 high levels of macroeconomic stability. Last but not least, Bulgaria has low levels of unemployment and a rather low tax burden, considering the 10 per cent flat rate income tax. Despite these positive macroeconomic parameters and tendencies, the EU institutions remain rather reluctant to promote Bulgarian integration into the eurozone. Since Bulgaria is not part of the eurozone, it was not exposed to international and supranational pressure for institutional adjustment with constitutional implications. In addition, Bulgaria has not been suffering a recent public debt crisis. That is why it has not faced the necessity to implement austerity measures, which are frequently paralleled in other countries by pressure for institutional reform, sometimes with a constitutional dimension. The EU integration clause of the Bulgarian Constitution introduced in 2005 is rather austere, laconic and vague. It is both formal and symbolic. According to new paragraph 3 of Article 4 of the Constitution, ‘The Republic of Bulgaria participates in the construction and development of the EU’. This rather brief wording is the pillar of the Bulgarian EU membership, the EMU membership included. Strangely enough, the EU integration clause is part of Article 4 of the Constitution, which provides for the principle of rule of law and for the protection of the life, dignity, rights and freedoms of the citizens as well as for the freedom of the civil society. Indeed, the rule of law and respect for human dignity are among the key principles of EU law. However, this fact does not justify the rather mechanical inclusion of the Bulgarian EU integration clause as a supplement and an extension of the rule of law clause of the 1991 Constitution. Even if an extensive separate structural part of the Constitution devoted to EU and EMU integration could have been barely expected in the Bulgarian pre-accession context, a separate provision on EU integration and some more elaborated provisions related to the hierarchical standing of EU law and some basic principles governing the EU and EMU memberships could have been included in the 1991 Constitution. This could have been done either during the preparation for EU membership or at a later phase. The declarative nature of the Bulgarian EU integration clause is predetermined by the pursuit of several implicit goals. It is a solemn declaration of belongingness with high symbolic importance from the viewpoint of constitutional semiotics. This is due to the deliberate emphasis on the construction metaphor, by virtue of which the Bulgarian elite and thus Bulgarian society subscribes to the construction of the EU as a fascinating and most developed project for supranational and even global constitutionalism.

Bulgaria  81 The EU-related constitutional amendments introduced in 2005 and 2007 just briefly r­ eproduce some basic principles of the relationship between parliament and government in the EU decision-making process, eg enhancing parliamentary control over governmental activity at the EU level, and safeguarding the freedom of movement of capital by allowing EU citizens to buy land and property in Bulgaria. Most of these requirements and principles are already provided by EU law and are merely reproduced by the 1991 Constitution in order to formally acquire ­constitutional standing. Hence, the 1991 Constitution is both EU-friendly and EMU-insensitive. It can also be defined as an EU minimalist constitution. Bulgaria’s EMU participation and the subsequent adoption and entry into force of the EMU reform acts (eg, the Euro Plus pact, the Six Pack legislation and parts of the Treaty on Stability, Coordination and Governance (Fiscal Compact)) are reflected neither in the 1991 Constitution nor in other sources of Bulgarian constitutional law. These pillars of the developing EU financial constitutionalism are implemented in Bulgaria as acts which ­exclusively impact Bulgarian financial law without affecting Bulgarian constitutional law or Bulgarian constitutionalism perceived not only as normative, but also as intellectual (­ideological) and socio-political (empirical) phenomenon. This is evident not just from a formal reading of the Constitution and the rest of the sources of constitutional law, but also from the absence of case law from the Constitutional Court and the other Bulgarian courts relating to the constitutional dimension of EMU membership. The constitutional doctrine is also extremely passive. With very few exceptions,9 Bulgaria’s EMU membership is considered to be a non-constitutional or extraconstitutional phenomenon, and almost no attention is paid to it by Bulgarian constitutional law scholarship. Provisions related to the financial constitution are contained in the General Provisions of the Constitution, Chapter II of which is devoted to human rights, and in the constitutional c­ hapters regulating the state institutions – especially the National Assembly, but also the Council of Ministers, the office of President, and the local self-government. However, none of these provisions directly concern the EMU and Bulgarian participation in it. Most of the provisions are related to the budgetary process, the constitutive competences of the National Assembly with regard to the Bulgarian National Bank and the Court of Auditors, the distribution of competences related to approval, ratification and denouncement of treaties with financial implications or requiring financial and tax law acts of parliament for their implementation, the distribution of taxation competences between the national and local level and, last but not least, the tax rights and duties of the citizen. The constitutional framework for the transfer of constitutional competences to the EU, which is discussed in more detail in other parts of this chapter, is also relevant for the EMU membership of Bulgaria. There are also several acts of parliament which are to a certain extent relevant to Bulgarian membership in the EMU. This is especially the Fiscal Council and Automatic Corrective Mechanisms Act, which implements the requirements of the Fiscal Compact, but also the Bulgarian National Bank Act, the Currency Act, the State Debt Act, the Public Finance Act and the Financial Government and Control in the Public Sector Act. According to the Bulgarian doctrine, all these acts fall into the sphere of administrative and financial law. Thus, they are not sources of constitutional law and are in principle irrelevant for both constitutional law and constitutional theory. These acts may have constitutional relevance if they (1)  ­contravene the 1991 Constitution, (2) trigger debate for some necessary constitutional amendments, 9 Martin Belov, Financial constitutionalism (Sofia, Sibi, 2015) (in Bulgarian) 1–180; Savina Mihaylova, ‘Rule of Law Infringements in the Field of European Structural and Investment Funds Management’ in M Belov (ed) Rule of Law at the Beginning of the XXI Century (The Hague, Eleven, 2018).

82  Martin Belov or (3) provide for further development of the financial constitution comprising the constitu­ tional foundations of public finance management. None of these three cases of constitutional relevance of the above-mentioned acts of parliament is currently at hand. Joining the eurozone will not necessarily require constitutional amendments. This is due to the fact that the 1991 Constitution only requires that the governors of the Bulgarian National Bank must be elected by the National Assembly. However, it does not provide for any details regarding its status and functions. To sum up, neither the 1991 Constitution nor Bulgarian constitutional law in general contain any EMU-specific provisions. There are no compulsory constitutional amendments required by the eventual Bulgarian eurozone membership. It is also politically unlikely that the procedures for such amendments will be initiated. Bulgarian administrative, financial and tax law is partially influenced by Bulgarian EMU membership. The most important example is the establishment of the Bulgarian Fiscal Council by virtue of the Fiscal Council and Automatic Corrective Mechanisms Act which has been adopted as a result of the ratification on 28 November 2013 of the Treaty on Stability, Coordination and Governance by the Republic of Bulgaria and the implementation of Council Directive 2011/85/ EU on the Requirements for Budgetary Frameworks of the Member States. The legislative background of the public finance and public debt management, the monetary board and the institutional independence of the Bulgarian National Bank, the Court of Auditors and the other institutions for management of the public and corporate finance, eg the Financial Oversight Committee, the Committee for Protection of Competition etc have some more direct or more remote and indirect relevance also for the Bulgarian EMU membership. Rules governing closely related instruments outside the EU legal order, especially the Treaty on the ESM and the Treaty on Stability, Coordination and Governance (TSCG), are rather rare. The practice and doctrinal debate on these provisions is also very scarce and limited. If there has been any debate on EMU membership in Bulgaria and on the eventual Bulgarian membership in the eurozone, it has been either a political one – led in the media or in the state institutions (especially the parliament) – or an economic and financial one, led by scholars in these scientific domains. However, a mature and extensive legal debate on these issues is yet to take place. The EU has for long time been reluctant about possible eurozone membership of Bulgaria. At a first glance this is surprising, considering the principle that eurozone membership is open to all EU member states and the adoption of the euro is in fact a duty of the Member States. There are three reasons. The first reason concerns the plans for reform of the EU and the eurozone. In particular, the proposals of the French President Emanuel Macron to deepen the eurozone integration and to establish ‘Europe a plusieurs vitesses’ have for a long time had detrimental effects on the widening of the eurozone in general and to Bulgarian membership in it. The acceptance of Bulgaria to join the ERM II in July 2020 may be seen as an indicator for a change in a positive direction. The second reason for the postponing of Bulgarian membership in the eurozone which seems to have been overcome with Bulgaria joining ERM II in July 2020 concerns the inner problems of the Bulgarian political system. Corruption, nepotism and an inefficient, lobbyist and politically dependent judiciary are among the main traditional deficiencies of the Bulgarian constitutional system. An additional problem, which is of particular importance in view of the EMU, concerns the mistrust in the ability of the Bulgarian National Bank to secure impartial and reliable governance of the Bulgarian banking system. Indeed, since 1997 there have been no mass bankruptcies in the Bulgarian banking sector. However, in 2014 the Corporate and Commercial Bank declared

Bulgaria  83 bankruptcy and thus profoundly shook not only the banking sector but also the Bulgarian­ political order, leading to mass protests and resignation of the government of Plamen Oresharshki. In the case of the Corporate and Commercial Bank, the Bulgarian National Bank ignored the early signals for the problems of this important Bulgarian bank and, thus, misguided its investors and creditors, compromising trust in the banking system. There have also been concerns with the financial soundness of Fibank. The stress tests in 2019–20 demonstrated that it needs additional capitalisation (additional capital buffer). This seemingly has finally been achieved with the help of the state, which has intervened through the Bulgarian Development Bank. The third important problem is the low level of salaries in Bulgaria. After 10 years of EU membership, living standard in Bulgaria still remains relatively low. Hence, despite its macroeconomic and political stability and the general EU and eurozone-friendly attitude of both its political elite and its citizens, Bulgaria is still far from a durable and sustainable economic and social convergence with the more advanced EU Member States and especially with many of the members of the eurozone. This has been and perhaps still is considered an impediment to Bulgarian membership in the eurozone. The main argument is that formal convergence is important, but not a sufficient prerequisite for successful eurozone membership. Thus, the macroeconomic and political stability should be followed by substantial convergence especially with regard to the currently ongoing plans for further deepening of the EU integration on the basis and within the eurozone. It must be taken into account that none of the above-mentioned three main impediments to Bulgarian eurozone membership has explicit constitutional dimension. In other words, no constitutional amendment can solve any of these issues. These three problems have no institutional answers because they are either matters of trust, or stem from geopolitical decisions or concern substantial economic and financial issues. The Bulgarian National Bank has constitutional standing, albeit not elaborate or extensive. Its political and institutional autonomy can be enhanced via a constitutional amendment. However, its practical independence and vigilance can hardly be fostered through constitutional reforms unless one subscribes to constitutional fetishism. The same is true of the economic and social convergence and for the political trust of the political elites in Europe in the Bulgarian political and economic elite and for their desire to see Bulgaria part of the eurozone and, thus, of the ‘hard core’ of Europe. Despite the above-mentioned problems experienced by Bulgaria for more than decade after its EU accession, in July 2020 Bulgaria joined ERM II. It remains to be seen whether and how soon it will join also the eurozone.

III.  Constitutional Obstacles to EMU Integration The implementation of the crisis management measures within and outside EU law revealed no constitutional issues in Bulgaria. There has been meagre discussion, which has been predominantly political, on the Treaty on Stability, Coordination and Governance, the Euro-Plus Pact and the Stability and Growth Pact reforms. It has been led in the media between different political stakeholders. If there was an academic discussion it was almost exclusively a macroeconomic one with no direct involvement of constitutional arguments. Hence, the legal issues arising from the new measures for safeguarding financial stability and particularly the legal aspects of austerity measures remained largely disregarded.

84  Martin Belov There are four main reasons for the passiveness of the legal scholarship in general and of the constitutional law science in particular with regard to EMU issues during the financial crisis. They are independent of each other, but altogether prevented the emergence of a constitutional discourse on financial austerity and macroeconomic conservatism in Bulgaria. First, Bulgaria was not dramatically affected by the financial crisis. Admittedly, economic stagnation, increase of unemployment and rise of economic pressures were witnessed also in Bulgaria. However, Bulgaria has stable public finances and rather low levels of public debt, which allowed the country to recover from the crisis without the need for real austerity measures, substantial cuts in public spending or the need for radical structural adjustment of the fiscal rules as provided for by the EU-related measures. Second, there has been broad political consensus for obedience to conservative budgetary and financial expenditure policy. Despite the communist-egalitarian heritage and the fact that the 1991 Constitution provides for a welfare state and several important social and economic rights, no Bulgarian institution really activated any welfare state defence strategy against the EU measures for conservative macroeconomic solution of the financial crisis. This is especially true for the Constitutional Court, the President of the Republic and the parliamentary opposition, which kept a low profile in this domain and did not challenge the measures of the government and its parliamentary majority for dealing with the effects of the financial crisis in Bulgaria.10 The opposition publicly criticised some government initiatives, projects and policies, but neither took recourse to any radical form of protest nor approached the Constitutional Court with a demand to declare any of them unconstitutional. A general consensus exists among the Bulgarian political parties and political stakeholders to maintain the macroeconomic stability of the country even at the price of an entrenched moderate poverty of the population. Bulgaria was not massively affected by the financial crisis. The only two visible problematic phenomena during the financial crisis in terms of macroeconomic stability politics were the bankruptcy of the Corporate and Commercial Bank in 2014 and the parliament’s authorisation for the government to take several billion euros in international loans in 2015. Neither issue had direct constitutional consequences, the only exception being the questionable framework approval by the parliament of the multibillion international loan. In other words, it can be argued whether the general approval of this new public debt by the parliament without sufficiently concrete parameters of its implementation by the government really safeguards the preventive controlling function of the National Assembly in the domain of public finance provided by Articles 62 and 84(9) of the Constitution. Either way, even with this public debt increase, the debt level was still clearly within the parameters of macroeconomic stability set by the EU legislation. Third, Bulgaria is not yet a member of the eurozone. Hence, there are no constitutional provisions concerning eurozone membership. Moreover, there was no political pressure for the introduction of such provisions (eg the provisions of the Treaty on Stability, Coordination and Governance) in the Constitution or for adoption and implementation of radical austerity measures. For example, the adoption of the Fiscal Council and Automatic Corrective Mechanisms Act in 2015 remained unnoticed by both the scientific discourse and the general public discourse. Fourth, the Bulgarian Constitution does not contain any rigid limitations or entrenched obstacles for EMU integration in general or for macroeconomic stability measures in particular. It does not provide for any concrete framework for EMU membership that may be used, eg by the 10 However, note the failed proposal for constitutional amendment seeking to entrench a sort of Bulgarian Pact for Financial Stability in the Constitution, discussed in Mihail Vatsov, ‘Bulgaria’ in T Beukers, B de Witte, C Kilpatrick, Constitutional Change through Euro Crisis Law European (Cambridge, Cambridge University Press, 2017).

Bulgaria  85 Constitutional Court, for the development of a ‘counter-limits’ doctrine.11 This does not mean that such ‘counter-limits’ may not be developed and put into practice by the Constitutional Court, but only that any such limits are hitherto not explicit or applied. Moreover, the Bulgarian financial system has a rather neo-liberal outlook and is conceived as being instrumental for the maintenance of political stability, EU integration and attractiveness for foreign investment. The neo-liberal outlook is shaped by a combination of several factors. The most important among them are the low level of taxation, especially since the introduction of the 10 per cent flat rate income tax in 2008, and the reduced ability of the state to intervene in the monetary policy because of the existence of a monetary board since 1997. In that context, the outsourcing of oversight of the bank system to the EU in the course of further EMU development in the shape of a genuine banking union may be perceived as a continuation of the deliberate choice of a conservative macroeconomic policy and a neo-liberal design of the Bulgarian ­financial system. The belief in prosperity through self-imposed austerity is indeed a peculiarity of the Bulgarian case. The main components of this self-imposed austerity are the monetary board and the low level of salaries imposed by all governments in combination with measures for the maintenance of macroeconomic stability. In contrast to all south European and many central and eastern European countries, where the compromises and even sacrifices of the welfare state in the name of macroeconomic stability, low public debt and low budgetary deficit have been met with fierce opposition, Bulgaria has chosen another path for development. Despite the fact that the welfare state is rooted in the main principles of the 1991 Constitution and the constitutionally provided wide-ranging social, economic and cultural rights, the financial and economic policy of all Bulgarian governments since the huge 1997 financial crisis has had a definite conservative outlook. Neo-liberal policy has been implemented even by governments dominated by the Bulgarian Socialist Party – the reformed Bulgarian Communist Party. For example, the Sergey Stanishev government introduced the 10 per cent flat income tax rate in 2008. This conservative macroeconomic policy consists, among other things, of maintaining a low level of salaries and expenditure for welfare state policies, a 10 per cent flat income tax rate, and low levels of public debt and budgetary deficit. The strategic choice for macroeconomic and financial stability has guaranteed a stable path towards European and transatlantic integration. Notwithstanding some pale criticism of predominantly populist parties, this strategic choice seems to be fundamental and entrenched in deep political consensus on both party and societal levels. In fact, Bulgaria is perhaps the only case of a rather well functioning monetary board. Thus, joining the eurozone is also a strategic priority for Bulgarian society and for the Bulgarian political class. It is unlikely to produce extreme and massive shocks experienced by other countries, since macroeconomic stability is already prioritised at the expense of welfare and social justice. Moreover, the Bulgarian government and the Bulgarian National Bank are already deprived of the competence to enact discretionary monetary policy, due to the monetary board. Last but not least, entering the eurozone is largely perceived as the optimal exit from the monetary board, which needs to be abolished eventually. This is because it is believed that the monetary board cannot last for ever and must be replaced by an institutional framework safeguarding financial stability. The fear is that without the monetary board there will be booming inflation and currency speculation leading to macroeconomic instability. 11 For the ‘counter-limits’ doctrine see for example Giuseppe Martinico, ‘Complexity and Cultural Sources of Law in the EU Context: From the Multilevel Constitutionalism to the Constitutional Synallagma’ (2007) 8 (3) German Law Journal 205–30; Pietro Faraguna, ‘A Living Constitutional Identity: The Contribution of Non-Judicial Actors’ (2015) 10/15 Jean Monnet Working Paper, 27.

86  Martin Belov These findings do not necessarily lead to the conclusion that this neo-liberal outlook of the system is without any problems. On the contrary, macroeconomic stability and a low level of public debt came at the price of a rather low standard of living. Salaries have remained at very low levels, creating the feeling of entrenched poverty and leading to compromises and even sacrifices with social equality and social justice. This, in turn, produces a non-negligible degree of social dissatisfaction with democracy and EU integration among the segments of Bulgarian society that lost their social standing in the course of the transition to capitalism. Furthermore, the 10 per cent flat income tax seems to be functioning effectively, improving the Bulgarian economy and increasing tax transparency and diminishing the ‘grey sector’ of the Bulgarian economy. However, it also seems to be unconstitutional. This is due to the fact that, according to Article 60 of the Constitution, the citizens are obliged to pay taxes relative to their income and property. Hence, the 1991 Constitution requires a proportional taxation system, which the flat income tax rate is in conceptual contradiction with. However, since its introduction in 2008, no one has challenged the constitutionality of the flat income tax in front of the Constitutional Court. The flat income tax is an element of the taxation policy of the Bulgarian governments aiming at increasing the attractiveness of the Bulgarian economy and restricting the ‘grey economy’. Hence, this tax has an indirect effect also on budgetary stability, which is related to the EMU. The lack of contestation of the constitutionality of the flat income tax might be an indicator that minor contraventions by the EMU of the Bulgarian Constitution may be deliberately omitted and might not be contentious, eg in front of the Constitutional Court, if the Bulgarian political elite and Bulgarian society are convinced of the practical effectiveness and usefulness of Bulgarian membership of the EU and prospectively of the eurozone. Indeed, this opportunist attitude is rather problematic from a constitutionalist viewpoint. However, it has to be taken into account due to the fact that it predetermines the functioning of the Bulgarian constitutional ‘law in action’ in the context of mixture of constitutional nihilism, EU friendliness and ‘tendential constitutionalism’.12 Bulgaria’s 1991 Constitution does not contain any ‘eternity’ or ‘unamendable’ clauses, sovereignty reserve or any concrete indicators for the constitutional core. All constitutional provisions can be amended – some requiring a more complicated procedure than others. This is because the Constitution features a two-track amendment procedure.13 The most important constitutional provisions in the view of the constitutional legislator are listed in Article 158 of the Constitution, which is too vague to be interpreted as defining a constitutional core. Moreover, it does not directly concern financial constitutionalism in general or EMU-related policies in particular. The Grand National Assembly is an especially elected covenant replacing the National Assembly with increased membership. It is the only institution competent to adopt a new constitution, to approve considerable changes in the state territory, or to amend the form of governance, the form of territorial distribution of power, the immediate effect of the constitutional provisions, the hierarchical standing of treaties, the irrevocability of human rights, the protection of certain constitutional rights in the context of state of siege, state of emergency or state of war and the procedure for amendment of the Constitution. As this is a rather difficult and complicated procedure it has not been activated since 1991. The rest of the constitutional provisions, which fall

12 See Manuel Gutan, ‘Romanian Tendential Constitutionalism and the Limits of European Constitutional Culture’ in M Belov (ed) Global Constitutionalism and Its Challenges to Westphalian Constitutional Law (Oxford, Hart, 2018) 103–33. 13 See Martin Belov, ‘Bulgaria’ in A Alen, D Haljan (eds) International Encyclopaedia of Laws (Alphen aan den Rijn, Kluwer, 2018) 28ff.

Bulgaria  87 outside of the scope of Article 158 of the Constitution, can be amended by the parliament via a procedure that is more sophisticated in comparison to the ordinary legislative procedure. Theoretically, only two of the issues listed in Article 158 of the Constitution and reserved for the Grand National Assembly may indirectly concern EMU issues. First, if the EMU leads to the development of such forms of financial federalism which may be conceived as elements of transformation of the EU (or the eurozone) into a federation then it may be argued that this process affects the form of territorial distribution of power in Bulgaria and falls into the scope of the entrenched clause. However, the current options for reform and development of the EMU and the eurozone are still far from remodelling the EU or the eurozone into a form of federal statehood or even a confederation. The EU and the eurozone are definitely forms of ‘constitutionalism beyond statehood’.14 Even though they possess many features of federalism, they do not constitute a form of statehood. Moreover, the Bulgarian Constitutional Court has already pronounced rather awkwardly in its Decision No 3 of 2004 that the form of territorial distribution of power concerns only the transformation of the territorial structure of the Bulgarian state, but not its participation as member of traditional or supranational forms of federalism. Indeed, the Constitutional Court did not explicitly exclude the participation of Bulgaria in federations as instantiation of transition to federal form of state. However, the Court held that the Grand National Assembly should be summoned to approve constitutional amendments changing the territorial structure of the state on national and sub-national levels, eg leading to the transformation of Bulgaria into federation, functional federation or confederation. However, changes in the territorial structure of power related to power levels above the national level, eg in the EU, do not necessarily require, according to the Constitutional Court, the sanction of the Grand National Assembly. In the Court’s opinion, they do not challenge or transform the form of territorial distribution of power. Second, the hierarchical standing of EU law and international law in the Bulgarian legal order may have an indirect influence on the Bulgarian participation in the EU in general and in the EMU in particular. The 1991 Constitution does not contain any specific provisions regarding the place and status of EU law in the Bulgarian legal order. Hence, EU law has no explicit constitutional standing. Article 5(4) of the 1991 Constitution provides only for the primacy of the treaties over domestic legislation, with the exception of the Constitution itself. Since there is no clear definition of the hierarchical standing of EU law ex constitutionem, one can expect this issue to be solved by a decision of the Constitutional Court. However, there is also no explicit pronouncement of the Bulgarian Constitutional Court on that issue. The Constitutional Court has only stated as an obiter dictum in Decision No 3 of 2004 that primary EU law has the same status as treaties. This pronouncement is rather problematic because it neglects the case law of the Court of Justice of the EU (CJEU) on the initially absolute and currently relative primacy of EU law. This dubious and contestable pronouncement of the Constitutional Court in conjunction with the lack of explicit mentioning of the hierarchical standing of EU law in the Constitution led to the conclusion that it seems most likely that EU law has the same hierarchical standing as treaties, in the Bulgarian constitutional order. This rather controversial conclusion should also be perceived against the background of the clear reluctance of the Bulgarian Constitutional Court to engage in judicial dialogue with the CJEU15 and the lack of any definition of either the Bulgarian 14 See Petra Dobner, Martin Loughlin (eds) Twilight of Constitutionalism? (Oxford, Oxford University Press, 2010); Neil Walker, ‘Taking Constitutionalism beyond the State’ (2008) 56 (3) Political Studies, 519–43. 15 See Mihail Vatsov, ‘European Integration Through Preliminary Rulings? The Case of the Bulgarian Constitutional Court’ (2015) 16 (6) German Law Journal, 1592–1622.

88  Martin Belov constitutional identity or any forms of ‘counter-limits’ to the EU integration, the primacy of the EU law and the transfer of sovereign competences to the EU. Accordingly, from the rather hesitant and questionable case law of the Bulgarian Constitutional Court on EU issues and on EU-related constitutional amendments it can be concluded that that EU law is simply conceived as international law and even equivalent to treaties. This rather problematic perception of EU law is indirectly followed also by parliament. The Normative Acts Act is a specific act of parliament providing for the status and characteristics of the sources of law in the Bulgarian legal order. It declares that EU regulations have primacy over national normative acts. However, the 1991 Constitution is explicitly excluded from the category ‘normative act’. Thus, the Normative Acts Act is either incomplete with regard to the issue of the relationship between the Constitution and EU regulations, or implicitly provides a contrario for the absolute primacy of the Bulgarian Constitution over EU regulations and EU law in general. Moreover, the Normative Acts Act does not contain any provisions regarding the hierarchical standing and the effects of the other sources of EU law. This rather peculiar semi-tacit and predominantly indirect and implicit establishment of the absolute primacy of the 1991 Constitution over EU law may prove to be problematic at some future point of further EU integration and even in its current enhanced stage. Moreover, it is indicative of the mismatch between the overly friendly approach of the Bulgarian Constitution and the Bulgarian legal order towards the EU and the implicit sovereigntist attitude safeguarding the absolute supremacy of the 1991 Constitution in an implicit, hidden and concealed way. This attitude of the Bulgarian stakeholders with regard to the primacy of EU law, which also has constitutional shape and outlook, is an example of ‘tendential constitutionalism’16 as predominant political strategy of the Bulgarian post-communist political elite for adaptation to the challenges of globalisation, Europeanisation and the supranational constitutionalism of the EU. That is why, at some point of the EU integration of Bulgaria, EU law may need a clearer hierarchical standing in the Bulgarian legal order. This can be done either via explicit constitutional amendment, which should be accomplished by the Grand National Assembly if the primacy of the Constitution is concerned (which will most likely be the case) or it can be accomplished through interpretative decisions of the Constitutional Court. The first option has advantages in terms of sovereignty and democracy whereas the second option is much more flexible but rather questionable with regard to the above-mentioned two constitutional principles as well as with regard to separation of powers. In fact, the combination of the entrenched clause, the implicit and indirect submergence of EU law under the category of international law and treaties, and linking the issue of the hierarchical standing of EU law in the Bulgarian legal order to the competences of the Grand National Assembly, may be perceived as a tacit, yet durable and recognisable strategy of the Bulgarian institutions for safeguarding the absolute supremacy of the 1991 Constitution. This rather nationalist attitude is, at first glance, in strange contrast with the provision of Article 85(1)(9) and 85(2) of the Constitution which allows the parliament to transfer constitutional – that is to say sovereign – competences to the EU by virtue of this eased procedure. This procedure allows the National Assembly to ratify treaties that transfer competences stemming out of the Bulgarian Constitution by virtue of two readings with a two-thirds majority of the votes of all MPs. In contrast, the Constitution can be amended by the National Assembly through three readings by virtue of a three-quarters majority of the votes of all MPs. Article 85(1)(9) and 85(2) of the Constitution



16 See

M Gutan, ‘Romanian Tendential Constitutionalism and the Limits of European Constitutional Culture’.

Bulgaria  89 provides only for the procedure for transfer of constitutional competences. However, it neither sets substantial standards and criteria, which must be applied as ‘counter-limits’, nor determines substantial conditions related to constitutional axiology, human rights or institutional design, which must be taken into account by the parliament (or by any other state or EU institution) in the course of transfer of constitutional competences. Both nationalism with regard to supremacy of the Constitution, and supranationalism related to the transfer of constitutional competences, are the result of the Bulgarian post-communist elite’s desire to keep control of the points of contact and the channels for systemic communication and adjustment in the context of the Bulgarian integration in forms of supranational constitutionalism. The absolute constitutional supremacy may be activated as defence strategy against undesired trends in the EU or EMU integration. However, if deep constitutional reforms may be needed the procedure for constitutional amendment provided in Chapter IX of the Constitution could be de facto ignored. This can be done by virtue of a combination of two actions. The first action is transferring constitutional (sovereign) competences to the EU by the parliament, as allowed by the pro-European case law of the Constitutional Court and in accordance with Article 85(1)(9) and 85(2) of the Constitution. The second action is a constitutional amendment introduced by the National Assembly instead of the Grand National Assembly. Both strategies – the nationalist protection of absolute constitutional sovereignty contradicting the CJEU’s case law and the supranationalist eased transfer of constitutional competences while an EU friendly Constitutional Court is redefining the separation of competences between the National Assembly and the Grand National Assembly – are very problematic from the viewpoint of both EU law and Bulgarian constitutional law. There is also no case law on the Bulgarian constitutional identity stemming from the Constitutional Court or other main courts such as the Supreme Administrative Court and the Supreme Court of Cassation. The very concepts of constitutional identity, constitutional tradition and judicial dialogue are unknown for the Bulgarian courts the Constitutional Court and the supreme courts included. Thus, the constitutional identity still remains part of the ‘missing constitution’ in Bulgaria. The only attempt to define the Bulgarian constitutional identity has been made in the literature, and more precisely in my book The Bulgarian Constitutional Identity’.17 Based on comparative legal historic and socio-legal research of the Bulgarian constitutional tradition and the identity of the four Bulgarian constitutions, I am suggesting that the Bulgarian constitutional identity comprises certain durable elements that are also forming the Bulgarian constitutional anthropology. These elements are the unitary form of the state, the unicameral parliament, the civic and political constitutional rights and republicanism. None of these elements has the potential to be an impediment to the eventual Bulgarian membership of the eurozone. Most of them concern neither the EMU, nor the eventual Bulgarian membership in the eurozone. The only exception might be the unitary form of the state in case of further federalisation of the EU or the eurozone. However, the activation of any defence strategies against federalist trends in the EMU integration based on the unitary state element of the Bulgarian constitutional identity is very unlikely. This is because of (1) the lack of explicit recognition of any elements of Bulgarian constitutional identity in valid sources of law, (2) the case law of the Constitutional Court (Decision No 3 of 2004) disregarding supranational forms of federalism as manifestations of alteration of the form of territorial distribution



17 See

Martin Belov, The Bulgarian Constitutional Identity (Sofia, Sibi, 2017) 1–239.

90  Martin Belov of power, and (3) the traditionally opportunistic attitude of the Bulgarian political elite towards EU integration. The main proposals for EMU reform concern: the appointment of an EU minister for economy and finance, eurozone fiscal capacity, macroeconomic stabilisation mechanism for asymmetric economic shocks, a European Monetary Fund (EMF) and rules for additional enhancement of the fiscal discipline and for accomplishment of structural reforms. Appointing an EU minister for economy and finance will not require any amendments in the Bulgarian Constitution. It is also very unlikely that it will trigger an important constitutional debate in Bulgaria. If the current trends in the Bulgarian political life remain unchanged, it is most likely that this reform will be approved. This is due to both the traditional affirmative stance of Bulgaria on almost any EMU reforms, the desire of Bulgaria to become a member of the ­eurozone, and the substantial reasonableness of this proposal. Indeed, there might be arguments that the establishment of a new EU minister in this important policy field deepens the federalisation of the EU and, thus, requires some constitutional response. However, such arguments are unlikely to prevail in Bulgaria. The establishment of a eurozone fiscal capacity and macroeconomic stabilisation mechanism for asymmetric economic shocks is also not expected to induce any amendments of the Bulgarian Constitution. This is because Bulgaria is still not a member of the eurozone. If the eurozone fiscal capacity and the macroeconomic stabilisation mechanism for asymmetric economic shocks is established as suggested by the European Parliament and the Commission,18 specific constitutional backing might be needed in Bulgaria with regard to the transfer of budgetary competences to the EU. However, it is unlikely that the transfer of budgetary competences will be accomplished via a constitutional amendment. Instead, it will probably be accomplished through a ratification of the EU reforms on the basis of the procedure for transfer of constitutional competences provided in Article 85(1)(9) and 85(2) of the Constitution. This Article provides that the National Assembly should ratify treaties transferring to the EU competences that are stemming from the Bulgarian Constitution. The act of parliament ratifying such treaties has to be adopted in two readings with a two-thirds qualified majority of all MPs. Establishing the EMF also does not seem to have direct constitutional implications in Bulgaria. The same is true for the rules on additional enhancement of the fiscal discipline and on implementing relevant structural reforms that might be provided by the proposed Council directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States as well as the draft Regulation of the European Parliament and the Council amending Regulation (EU) 1303 of 2013. No constitutional provisions concerning the Bulgarian institutional design, the constitutional axiology, or human rights seem to be endangered or challenged by the suggested establishment of the EMF or the rules on additional enhancement of the fiscal discipline and implementing structural reforms. In addition, the establishment of the EMF is not immediate and topical issue for Bulgaria due to the fact that the country is still not a member of the eurozone.

18 See European Commission, ‘Communication of the European Commission on the New Budgetary Instruments for a Stable Euro Area within the Union Framework’ (COM (2017) 822).

Bulgaria  91

IV.  Constitutional Rules and Practice on Implementing EMU Related Law Both supranational (EU) law and international law can be implemented via acts of parliament or through decrees of the Council of Ministers (the Bulgarian government). The most important difference is that the act of parliament and the governmental decree introducing a treaty in the Bulgarian legal order are formal while the act of parliament and the governmental decree implementing EU directives are substantial. This means that the implementation of treaties is accomplished via acts of parliament or governmental decrees lacking their own normative content apart from the single provision stipulating the ratification of the treaty. On the contrary, the implementation of EU directives is done via their creative reproduction and further development in national law – in the Bulgarian case through acts of parliament and less frequently via governmental decrees. The acts of parliament implementing EU directives and ratifying treaties are adopted in two readings. While MPs are not explicitly prohibited to introduce such acts, this is de facto the exclusive prerogative of the Council of Ministers. The Constitution requires that the acts of parliament have to be adopted in the presence of more than half of all MPs and by a simple majority of the MPs present in the sitting. In the Bulgarian case this means that the quorum comprises at least 121 MPs and in that case a simple majority would be at least 61 MPs. Article 85 of the 1991 Constitution explicitly provides for treaties that must be introduced in the Bulgarian legal order via act of parliament and not via governmental decree. The exhaustive list of Article 85 of the 1991 Constitution includes treaties that are (1) of a political or military nature; (2) concern the participation of the Republic of Bulgaria in international organisations; (3) provide for a modification of the border of the Republic of Bulgaria; (4) impose financial obligations on the state; (5) provide for participation of the state in arbitration or court settlement of international disputes; (6) affect fundamental human rights; (7) affect the operation of the law or require measures of a legislative nature for the performance thereof; and (8) expressly require ratification via act of parliament. In 2005, new point 9 to Article 85(1) of the Constitution adds to the list treaties granting to the EU powers arising from this Constitution. Moreover, according to the new paragraph 2 of Article 85 of the Constitution, the adoption of an act of parliament for the ratification of such treaty requires a two-thirds majority of all MPs. Hence, the act of parliament for ratification of treaties is adopted through the same procedure as the ordinary acts of parliament. The only difference is that the two ratification readings can take place in one parliamentary sitting. This is because of the formality of the act of parliament. In other words, in case of treaty ratification the National Assembly can either adopt or reject the adoption of the ratification act of parliament. However, it cannot introduce any amendments in the text of the treaty being ratified. Thus, the treaty is implemented through a formal act of parliament lacking any independent normative content apart from recognising the legal force of the treaty in the Bulgarian legal system. That is why ratified treaties have direct effect in the Bulgarian legal order. Moreover, since the 2005 constitutional amendment, treaties implying transfer of constitutional competences can be ratified through a qualified ratification procedure. This procedure, however, is not performed by an institution of the constituent power and is significantly simplified compared to the procedures for amending the Constitution. Thus, transferring constitutional competences to international and supranational organisations appears simpler than amending the 1991 Constitution. Accordingly, transferring competences to the EU in the financial

92  Martin Belov and monetary domain will be easier than introducing constitutional amendments relating to Bulgarian membership in the EMU and the eurozone. This finding, in conjunction with the implicitly contested primacy of EU law over the Bulgarian Constitution, means that the potential legal issues which may arise with regard to the EMU and eurozone memberships concern more the formal adjustment of the 1991 Constitution to supranational legal requirements than the ratification of treaties and implementation of EU directives. However, the Bulgarian Constitutional Court often had a rather pro-European stance on constitutional amendments that were required in the process of the Bulgarian EU integration. Examples are Decision No 3 of 2004 and Decision No 8 of 2005. These Decisions in practice redefined the competences of the constituent power institutions in favour of the National Assembly and to the detriment of the Grand National Assembly in order to introduce the necessary EU-related amendments in the 1991 Constitution. If the Constitutional Court also adopts a Euro-friendly attitude, it may also foster eurozone integration and ease the procedural requirements for EMU and eurozone-related constitutional amendments in Bulgaria, thus paving the way for further integration. Indeed, such practices of the Constitutional Court may be criticised as too activist. However, the Bulgarian Constitutional Court has never been afraid of such criticism. It should also be taken into account that the Constitutional Court may use welfare state tactics against eventual EMU-related acts of parliament or international agreements. The welfare state is still an important argument in Bulgarian constitutional debates. However, the use of such tactics seems unlikely in light of the rather passive attitude of the Bulgarian Constitutional Court with regard to EU-related issues. The principles of welfare state, democracy, sovereignty and subsidiarity are yet to be used by the Constitutional Court, or by other courts as limitations to Bulgarian membership in the EU. The only sources of EU law that can be implemented in the Bulgarian legal order via domestic legislation are EU directives. This is because regulations and decisions are directly applicable in the Bulgarian system. EU directives may be implemented by acts of parliament or by normative acts of the Council of Ministers. However, most often they are implemented via acts of parliament for two main reasons. First, transposition allows the parliament to preserve some discretion and control over the legislative process in the EU. Second, Bulgarian political culture and legal doctrine are apprehensive of seizure of the legislative competences of the parliament by the Council of Ministers. The implementation of EU directives is perceived as an important legislative activity. Thus, the National Assembly is put in a position to have the final say over such activity. Two conclusions regarding EMU-related EU law and treaties can be made on the basis of this constitutional background. First, the EMU-related EU law and treaties are subject to compulsory parliamentary ratification. Most often they have to be introduced in the Bulgarian legal order through an act of parliament and not via a governmental decree. This is due to the fact that they alternatively or simultaneously concern political and financial issues, the participation of the state in international and supranational organisations and may affect directly or indirectly human rights or may impose financial obligations to the state. Moreover, they may require the adoption of measures of legislative nature for their implementation. Thus, Article 85 of the 1991 Constitution safeguards the central position of the National Assembly in the context of the implementation of and the ex post control over legislative measures related to the EMU. However, it is questionable whether the parliament itself has the necessary information, motivation and capacity to engage in multilevel constitutional and financial politics and to actively, systematically and rationally control the further development of the EMU through the means of the domestic legislative process.

Bulgaria  93 Second, the ratification procedure for treaties transferring constitutional competences to international and supranational organisations is rather questionable from the viewpoint of the principle of sovereignty. This is due to the fact that Article 85(2) of the Constitution, which was introduced in 2005, provides for a much easier procedure for transfer of constitutional competences than the procedures for constitutional amendment enshrined in Chapter IX of the Constitution. The transfer of competences stemming out of the 1991 Constitution is in fact transfer of sovereign competences and in eventually – transfer of sovereignty. Traditional theory of sovereignty suggests that the constitution is both a legal repository and a legal safeguard of sovereignty. Hence, in all modern states the constitution is amended via special procedures for accomplishment of constituent power. Such procedures are provided in Chapter IX of the 1991 Constitution. Article 158 of the 1991 Constitution provides that the procedures for constitutional amendment can be amended only by a special covenant – the Grand National Assembly, which should be summoned especially for this purpose. Indeed, formally, the transfer of constitutional competences to international and supranational organisations is not exactly a direct amendment of the Constitution. However, in fact it produces outsourcing of sovereignty, which may allow the institutions of these organisations to gain influence in matters appertaining to the classical domains of sovereignty moulded in acts with primacy over the domestic Constitution. Hence, in my opinion, the introduction in 2005 of this specific procedure for transferring constitutional competences to international and supranational organisations is an ‘unconstitutional constitutional amendment’.19 It should have been introduced by the Grand National Assembly and not by the National Assembly. There is a pending threat that such outsourcing of constitutional competences via the simplified procedure accomplished by the parliament, especially with regard to the participation of Bulgaria in the EMU, might one day be challenged for its constitutionality before the Bulgarian Constitutional Court. This may produce insecurity for the Bulgarian participation in the EMU with possible spill-over effects for the other Member States. Article 105(3) and (4) of the Constitution provides for the control competences of the National Assembly over the Council of Ministers related to EU issues. Both paragraphs were introduced in 2005 in anticipation of Bulgarian membership of the EU. According to Article 105(3) of the Constitution, the Council of Ministers informs the National Assembly on issues relating to Bulgaria’s obligations stemming from its EU membership. Moreover, pertaining to Article 105(4) of the Constitution, when the Council of Ministers participates in the elaboration and the adoption of EU acts it must inform parliament in advance and must also subsequently report back on its activity. These obligations are further developed in the Regulation for the Organisation and the Activity of the National Assembly. The Council of Ministers is obliged to regularly inform the National Assembly on important EU-related issues and on its participation in the legislative and other decision-making processes in the EU. In addition, at the beginning of every EU Council Presidency the Council of Ministers must report on Bulgaria’s participation during the previous presidency and on its priorities during the forthcoming presidency. The parliamentary control over EU-related activity of the Council of Ministers can be accomplished by three main configurations in parliament, which are also entrusted with the control for observation of the subsidiarity and proportionality principles. These are the Plenum of the

19 See Yaniv Roznai, Unconstitutional Constitutional Amendments. The Limits of Amendment Powers (Oxford, Oxford University Press, 2017) 1–368.

94  Martin Belov National Assembly, the specialised standing parliamentary committee on EU issues and control over EU funds, and the other standing parliamentary committees in accordance with their specific competences.20 The standing parliamentary committee on EU issues and control over EU funds has several important competences related to the parliamentary control on EU issues. It is the central forum for elaboration and discussion of the parliamentary positions and acts related to parliamentary involvement in the participation of Bulgaria in the decision-making processes of the EU. The standing parliamentary committee on EU issues and control over EU funds discusses draft ­legislative acts of EU institutions and the framework positions on them. It adopts reports on them, which are then presented in plenary. That standing parliamentary committee also plays a central role in parliament’s subsidiarity and proportionality scrutiny of draft EU acts. Last but not least, the committee can impose parliamentary reservations on draft legislative act of the EU. The parliamentary reserve can be imposed on its own initiative or on a proposal of another standing parliamentary committee. In that case the Bulgarian government is obliged not to express any view and to make no statements on that act until the pronouncement of the National Assembly.21 However, no parliamentary reserve has been imposed so far. This is due to the fact that the parliamentary majority dominates the standing parliamentary committee on EU issues and control over EU funds and is itself dominated by the government and the prime minister. Moreover, that committee is yet to find appropriate cases of political importance warranting the imposition of parliamentary reserve. Last but not least, it seems that the logic of the Bulgarian majoritarian parliamentarism is not supportive of developing a practice of using this tool for enhanced parliamentary control. The standing parliamentary committees support the National Assembly in the parliamentary control on EU issues and in the preparation of its annual program related to the EU issues. They review draft legislative acts of the EU institutions in light of the principles of subsidiarity and proportionality and can propose the imposition of parliamentary reserve to the standing parliamentary committee on EU issues and control over EU funds, as already mentioned.

V.  Resulting Relationship between EMU Related Law and National Law The Bulgarian Constitution is generally EU-friendly. It provides for openness of the Bulgarian legal order towards international and supranational law. Moreover, there is broad compliance of the Bulgarian legal system with the requirements of EU law. Nevertheless, the participation of Bulgaria in the EMU did not produce any major legal reforms. It barely had any impact on either the 1991 Constitution or on the Bulgarian constitutional order as a whole. The main reasons for this situation that were identified above were (1) Bulgaria’s place outside the eurozone, (2) the lack of austerity measures and massive pressure for institutional reforms with constitutional impact, and (3) the minimalist and gradualist approach22 of the Bulgarian constitutional legislator towards EU integration in general and EMU integration in particular. 20 See M Belov, ‘Bulgaria’, 117. 21 Ibid. 22 See Evgeni Tanchev, Martin Belov ‘Constitutional Gradualism: Adapting to EU Membership and Improving the Judiciary in the Bulgarian Constitution’ (2008) 14 (1), European Public Law 3–19.

Bulgaria  95 Furthermore, Bulgarian law also had no impact on the EMU reforms adopted either within the EU law framework or outside of it through treaties. Bulgaria is neither important nor ­problematic. It is not a member of the eurozone. It does not constitute a case of peculiar interest for the EU with regard to either its constitutional design, or its economic, political and ­socio-legal performance. It is stable, predictable and at least formally obedient of EU policy in the EMU domain. Whether this is a long-lasting tendency backed by rational and deliberate adherence to reasonable macroeconomic policy and to compliance with EU law or it is just mimicry as suggested by the ‘tendential constitutionalism’23 and ‘parallel constitutional orders’24 hypothesis remains to be seen. One thing is sure. The potential accession of Bulgaria to the eurozone and the adoption of the euro may require certain adjustments, including a reform of Bulgarian constitutional law. Whether this adjustment will require and trigger an actual amendment of the Constitution or will be limited to a legislative reform that is eventually paralleled by Constitutional Court decisions remains to be seen. The shape the eurozone will take in the midterm will be an important factor, on the one hand, for the content, depth and scope of the potential constitutional reform and, on the other hand, for the general impact of the eurozone membership on the Bulgarian constitutional order. It seems that eventual federalisation of the eurozone, following either the reformist plans of President Macron or other possible reformist logics of deepening and constitutionalisation of the eurozone integration, will most likely trigger important constitutional changes in Bulgaria. First, it will trigger a constitutional amendment producing an explicit constitutional standing of the eurozone membership. Second, it will trigger a transfer of sovereign constitutional competences via the procedure provided by Article 85 of the Constitution.

References M Belov, ‘Bulgaria’ in A Alen, D Haljan (eds) International Encyclopaedia of Laws (Alphen aan den Rijn, Kluwer, 2018). M Belov, Citizens’ Participation in the Political Process. Constitutional Foundations (Sofia, Sibi, 2010). M Belov, ‘Constitutional Reflection of the Global Governance – Variations of Principle Issues in the Contemporary Bulgarian Constitutionalism’ in M Novkirishka (ed) Theo Noster. Digest in Honour of Theodor Piperkov (Sofia, St Kliment Ohridski University Press, 2014) 275–90. M Belov, Financial constitutionalism (Sofia, Sibi, 2015). M Belov, The Bulgarian Constitutional Identity (Sofia, Sibi, 2017). M Belov, ‘The idea of “Europe” as a factor in the Building of the Bulgarian Legal Identity’ (2017) 8(1) Romanian Journal of Comparative Law. M Belov, ‘The Ideological Heritage of Magna Carta and Its Reception in the Bulgarian Constitutionalism’ in D Valchev, P Panayotov, S Groysman, K Manov (eds) Scientific Readings in Honour of Venelin Ganev and Nikola Dolapchiev (Sofia, St Kliment Ohridski University Press, 2017). M Belov, ‘The Opening of the Constitutional Order of Democracy in Transition Towards Supranational Constitutionalism: The Bulgarian Case’ in B Fekete, F Gardos-Orosz (eds) Central and Eastern European Socio-Political and Legal Transition Revisited (Frankfurt am Main, Peter Lang, 2017) 213–31. P Dobner, M Loughlin (eds) Twilight of Constitutionalism? (Oxford, Oxford University Press, 2010).

23 See M Gutan, ‘Romanian Tendential Constitutionalism and the Limits of European Constitutional Culture’. 24 See György Gajduschek, ‘“The Opposite is True … as Well” Inconsistent Values and Attitudes in Hungarian Legal Culture: Empirical Evidence from and Speculation over Hungarian Survey Data’ in B Fekete, F Gardos-Orosz (eds) Central and Eastern European Socio-Political and Legal Transition Revisited (Frankfurt am Main, Peter Lang, 2017).

96  Martin Belov P Faraguna, ‘A Living Constitutional Identity: The Contribution of Non-Judicial Actors’ (2015) 10/15 Jean Monnet Working Paper. G Gajduschek, ‘“The Opposite is True … as Well” Inconsistent Values and Attitudes in Hungarian Legal Culture: Empirical Evidence from and Speculation over Hungarian Survey Data’ in B Fekete, F Gardos-Orosz (eds) Central and Eastern European Socio-Political and Legal Transition Revisited (Frankfurt am Main, Peter Lang, 2017). M Gutan, ‘Romanian Tendential Constitutionalism and the Limits of European Constitutional Culture’ in M Belov (ed) Global Constitutionalism and Its Challenges to Westphalian Constitutional Law (Oxford, Hart, 2018) 103–33. E Hobsbaum, T Ranger, The Invention of Traditions (Cambridge, Cambridge University Press, 1983). V Kirov, The Public Power (Sofia, Ciela, 2004). G Martinico, ‘Complexity and Cultural Sources of Law in the EU Context: From the Multilevel Constitutionalism to the Constitutional Synallagma’ (2007) 8 (3) German Law Journal, 205–30. S Mihaylova, ‘Rule of Law Infringements in the Field of European Structural and Investment Funds Management’ in M Belov (ed) Rule of Law at the Beginning of the XXI Century (The Hague, Eleven, 2018). D Mishkova, ‘Domesticating Modernity: Transfer of Ideologies and Institutions in Southeastern Europe’ in M Stolleis (ed), Konflikt und Koexistenz. Die Rechtsordnungen Südosteuropas im 19. und 20. Jahrhundert. Band 1: Rumänien, Bulgarien, Griechenland (Frankfurt am Main, Vittorio Klostermann Verlag, 2015) 723–55. Y Roznai, Unconstitutional Constitutional Amendments. The Limits of Amendment Powers (Oxford, Oxford University Press, 2017). E Tanchev, M Belov, ‘Constitutional Gradualism: Adapting to EU Membership and Improving the Judiciary in the Bulgarian Constitution’ (2008) 14 (1), European Public Law, 3–19. M Vatsov, ‘Bulgaria’ in T Beukers, B de Witte, C Kilpatrick (eds), Constitutional Change through Euro Crisis Law (Cambridge, Cambridge University Press, 2017). M Vatsov, ‘European Integration Through Preliminary Rulings? The Case of the Bulgarian Constitutional Court’ (2015) 16 (6) German Law Journal, 1592–1622. M Vatsov, P Vakleva, ‘The shadow of bicameralism in a unicameral State: the curious case of Bulgaria’ in R Albert, A Baraggia, C Fasone (eds), Constitutional Reform of National Legislatures: Bicameralism under Pressure (Cheltenham, Edward Elgar, 2019) (forthcoming). N Walker, ‘Taking Constitutionalism beyond the State’ (2008) 56 (3) Political Studies, 519–43.

List of Sources of Law Constitution of the Republic of Bulgaria of 12 July 1991 Acts of Parliament: Normative Acts Act Fiscal Council and Automatic Corrective Mechanisms Act Bulgarian National Bank Act Currency Act State Debt Act Public Finance Act Financial Government and Control in the Public Sector Act Constitutional Court’s Decisions: Decision No 3 of 2004 on Constitutional Court’s case No 3 of 2004 Decision No 8 of 2005 on Constitutional Court’s case No 7 of 2005

4 EMU Integration and the Czech Constitution Doctrinal Openness and Political Reluctance TOMÁŠ DUMBROVSKÝ

Abstract: The Czech Republic is not a member of the eurozone, it does not participate in the EFSF, the ESM Treaty, the Euro-Plus Pact or the Banking Union, nor is it bound by most of the provisions of the Six Pack and Two Pack legislation. It has, nonetheless, acceded to the Fiscal Stability Treaty. The decision not to partake in the monetary integration is voluntary and relates to political dynamics that have shifted the country into the increasingly euro-sceptic direction that is coming to dominate the region. The voluntariness of this decision becomes clear when we examine the convergence criteria and the Czech legal order. The Czech Republic has fulfilled all the convergence criteria, including the exchange rate criterion, for several years. Its constitutional order is open to further monetary and fiscal integration within or outside the EU framework. The constitutional provisions to allow for accession to the EU are not EU-specific and as long as a new treaty transfers state competences to an international organisation or institution, the internal effect of the treaty (and implementing laws) shall be governed by the same principles that have been developed by the Constitutional Court for the relationship between Czech constitutional law and EU law. Key words: Czech Republic; constitutional order; material core; ultra vires doctrine; member state with derogation; judicial review of economic measures; fiscal constitution.

I.  Main Characteristics of the National Constitutional System, and Constitutional Culture A.  Constitutional System Czech constitutional law is organised into a constitutional order including several constitutional acts – the Constitution of the Czech Republic in the strict sense,1 the Charter of Fundamental Rights and Freedoms2 and a number of other constitutional acts and their amendments.3

1 Constitutional

Act No 1/1993 Coll. Act No 2/1993 Coll. will use the term ‘Constitution’ as shorthand for constitutional order.

2 Constitutional 3 I

98  Tomáš Dumbrovský The constitutional order forms a referential framework for the Constitutional Court for reviewing the constitutionality of all acts of public power. All constitutional provisions enjoy the same legal status, with the exception of the material core of the Constitution protected by Article 9(2) of the Constitution (‘eternity clause’). Duly ratified treaties are ranked below constitutional law and possess application priority over statutory law in case of conflict. Treaties transferring certain powers to an international organisation (integrative treaties), enjoy a special status.4 The concurrence of three-fifths of all Deputies and three-fifths of Senators present is required for the adoption of a constitutional act and for ratifying an integrative treaty.5 The Constitution also allows for the integrative treaty to be approved in a referendum instead. This, however, requires the adoption of a special, one-time constitutional act. The Constitutional Court is separated from the ordinary courts and is vested with the ‘protection of constitutionality’.6 It exercises both abstract and concrete reviews. In particular, the Constitutional Court annuls statutes if they are in conflict with the constitutional order. An Amendment of the Constitution that was enacted in 2001 in anticipation of the accession of the Czech Republic to the EU (the so-called Euro-amendment of the Constitution) introduced an ex ante abstract review of constitutionality of treaties upon petition.7

B.  Critical Developments i.  Expansion of Presidential Powers Expansive use of presidential powers has tested the robustness of the constitutional system and its functioning according to the liberal democratic values enshrined in Article 2 TEU and the Czech constitutional order in the last decade. During the ratification of the Lisbon Treaty and the Article 136 TFEU Amendment, President Klaus claimed veto power over treaty ratification. The assent of both chambers of the parliament is required for the ratification of several types of treaties. These are (1) treaties affecting the rights or duties of persons, (2) treaties of alliance, peace, or other political nature, (3) treaties by which the Czech Republic becomes a member of an international organisation, (4) treaties of a general economic nature, and (5) treaties concerning additional matters, the regulation of which is reserved to a statute.8 The president negotiates treaties, a power he may, and routinely does, delegate to the government, and ratifies them. For the ratification he needs a countersignature of the prime minister or a designated member of the government. In President Klaus’s interpretation, assent of the parliament is only a prerequisite for the ratification, which is fully in the hands of the president. The president stalled the ratification of the Lisbon Treaty despite the government (based on the president’s implicit delegation) negotiating and signing the Treaty, both chambers of

4 Art 10a of the Constitution. 5 Art 10a of the Constitution. 6 Art 83 of the Constitution. 7 A petition to the Constitutional Court may be submitted by (1) one of the chambers of Parliament, as of the moment when the treaty is submitted to it for its consent, until the moment when the treaty receives that consent; (2) a group of at least 41 Deputies or a group of at least 17 Senators, from the moment when the parliament has given its consent, until the moment when the President of the Republic ratifies the treaty; (3) a group of at least 41 Deputies or a group of at least 17 Senators, from the declaration of the results of a referendum in which consent to the ratification is given, until the moment when the President of the Republic ratifies the treaty; and (4) the President of the Republic, from the moment when the treaty was submitted for ratification. 8 Art 49 of the Constitution.

EMU Integration and the Czech Constitution  99 parliament giving their consent by three-fifth, constitutional majority in each chamber (since the Treaty falls into the category of integrative treaties), and the Constitutional Court’s two decisions upholding the Treaty’s constitutionality.9 He conditioned the ratification to the Czech Republic being granted an opt-out from the application of the EU Charter of Fundamental Rights to the extent guaranteed to the UK and Poland. Since the Treaty was already ratified in all other Member States, the government swiftly negotiated a political declaration, adopted by the European Council in October 2009, that Protocol 30 on the UK and Poland exemptions would be modified to include the Czech Republic. Two years later, the Czech government, in a letter from its Permanent Representative, submitted to the Council a proposal, in accordance with Article 48(2) TEU, for the amendment of the Treaties to add a protocol concerning the application of the Charter to the Czech Republic. On 22 May 2013, the European Parliament adopted a resolution calling upon the European Council not to examine the change of Protocol 30 with respect to the Czech Republic’s ‘opt-out’.10 Eventually, the Czech opt-out was not included into the Accession Treaty with Croatia as originally envisaged, and was silently buried.11 A similar situation occurred during the ratification of the European Council Decision amending Article 136 TFEU. Both chambers of parliament gave their consent before June 2012. President Klaus refused to ratify the instrument altogether because of his deep objections to the ESM Treaty, to which the Czech Republic would be under pressure to accede once its derogation from the third stage of the EMU was abrogated.12 Eventually, President Klaus’s mandate expired and the new president, Miloš Zeman, swiftly ratified the Article 136 TFEU Amendment in April 2013. Klaus’s veto caused the ESM Treaty to enter into force ahead of the Article 136 TFEU amendment. In response to these constitutional controversies, the Senate filed a constitutional charge of high treason against the president.13 Since the president’s mandate was to expire on 7 March 2013 and the charge was filed two days before that date, the Senate’s action was largely symbolic. Prominent among the charges was ‘interference with the sovereignty of the state’, expressed in the president’s refusal to sign the Article 136 TFEU Amendment. The Constitutional Court dismissed the charge, arguing that the expiration of the mandate made the proceeding obsolete.14 The 2012 Amendment to the Constitution introduced direct presidential elections.15 Despite presidential powers being slightly reduced as part of the reform, a newly acquired independence of the parliament and boosted democratic legitimacy encouraged President Zeman to test the limits of his constitutional powers. Upon the resignation of the Nečas government in 2013, he appointed a new government that had no chance to pass the vote of confidence in the parliament (and it did not), and prolonged its existence until new elections were held. He also used his

9 Pl ÚS 19/08 Lisbon Treaty I [2008] No 446/2008 Coll; Pl ÚS 29/09 Lisbon Treaty II [2009] 387/2009 Coll. 10 European Parliament, Resolution of 22 May 2013 on the draft protocol on the application of the Charter of Fundamental Rights of the European Union to the Czech Republic (Art 48(3) of the Treaty on European Union), [2016] OJ C55/141–43. 11 Luboš Tichý, Tomáš Dumbrovský, ‘Czech Republic’ in S Griller et al (eds), National Constitutions and EU Integration (Oxford, Hart Publishing, forthcoming). 12 ČTK, Klaus: Euroval nepodepíšu. Považuji ho za zrůdnou věc, 7 December 2012, www.zpravy.aktualne.cz/domaci/­ politika/klaus-euroval-nepodepisu-povazuji-ho-za-zrudnou-vec/r~i:article:765534/?redirected=1528317201. In response, the Senate adopted a resolution calling upon the president to fulfil his constitutional obligation and ratify the Art 136 TFEU Amendment, which was, however, met without response. 13 Resolution of the Senate of the Parliament of the Czech Republic No 103, March 4. 2013 at www.senat.cz/xqw/ webdav/pssenat/original/67578/56894. 14 Pl. ÚS 17/13 High Treason [2013] U 4/68 SbNU 521 (dismissed). 15 Constitutional Act No 71/2012 Coll.

100  Tomáš Dumbrovský statutory power, sanctioned by the Constitution,16 to appoint university professors, understood until recently as a ceremonial function, to refuse appointments of selected persons. For the EMU integration, the presidential power to appoint the members of the Banking Council of the central bank and its governor and vice-governors is of significance. Unlike the process of appointment of the Constitutional Court judges, who are proposed by the president, but appointed with the consent of the Senate, or the appointment of the president and ­vice-president of the Supreme Auditing Office, who are appointed by the president upon nomination by the Chamber of Deputies, the appointment of the Banking Council is entirely in the hands of the president. He does not need a countersignature of the prime minister for appointing the members of the Banking Council, but the countersignature is required for the appointment of the governor and the vice-governors.17 Since the mandate of a member of the Banking Council as well as of its leadership is six years, a two-term president appoints the entire Banking Council and its leadership. Despite the constitutionally guaranteed central bank independence,18 the president is able to significantly shift a long-term monetary policy of the central bank by appointing members sharing his economic ideology. Until recently, the entire Banking Council was composed of President Klaus’s appointees, which might shed light on the central bank’s attitude to the obligation to join the eurozone and to the euro crisis measures and subsequent EMU reforms, in particular the Banking Union (see section IV.B. below). The recent appointment of the governor of the central bank has revealed a discrepancy between the Czech law and requirements of Article 14(2) of the Protocol on the Statute of the European System of Central Banks and of the European Central Bank, which requires that a governor’s mandate is at least five years. The Czech legislation does not stipulate explicitly the length of the governor’s mandate, but only of a member of the Banking Council (six years renewable once). The current governor, who was already two years in his mandate as a member of the Banking Council, with four years remaining, had to resign his first term and was appointed to his second six-year term to fulfil the requirement of Article 14(2) of the Protocol.

ii.  Ultra Vires Controversy: Landtová-Slovak Pensions The culmination of the Constitutional Court’s ultra vires doctrine came in the Slovak Pensions XVII case.19 Its context was a long saga of struggle between the Constitutional Court on the one side and the government and the Supreme Administrative Court on the other side. The struggle focused on whether Czech nationals receiving pensions from Slovakia for work performed during the existence of Czechoslovakia, which are lower than the pensions paid by the Czech Republic in similar circumstances, were discriminated against. Eventually, the Supreme Administrative Court submitted a preliminary reference to the Court of Justice of the European Union (CJEU).20

16 Art 63(2) of the Constitution. The exercise of this power requires countersignature of the prime minister or a designated government member, in this case the minister for education. 17 The former is a constitutional power stipulated in Art 62 k) of the Constitution, while the latter is a statutory empowerment falling within Art 63(2) of the Constitution. 18 Art 98 of the Constitution. 19 Pl. ÚS 5/12 Slovak Pensions XVII [2012] N 24/64 SbNU 237. 20 The Constitutional Court consolidated its case law on Slovak pensions in the decision Pl. ÚS 4/06 Slovak Pensions V [2007] N 54/44 SbNU 665. In the Court’s view, the Czech Social Security Authority (CSSA) was obliged to mitigate the discrimination by topping up pensions paid by the Slovak Social Security Authority to the Czech citizens so that the overall pension became what it would have been had the person entitled worked for an employer based in the Czech part of Czechoslovakia; a solution the Czech Supreme Administrative Court has consistently opposed.

EMU Integration and the Czech Constitution  101 The CJEU’s ruling in the Landtová case found the Constitutional Court’s solution under which Czech nationals with Slovak pensions are compensated for the difference, discriminatory towards other EU nationals.21 This infuriated the Constitutional Court, which had considered EU law inapplicable. Consequently, the Constitutional Court proclaimed the ruling of the CJEU ultra vires and without any effect in the Czech Republic.22 Although the Slovak Pension XVII case was the first, where an EU Member State’s constitutional court pronounced an act of an EU institution ultra vires,23 its jurisprudential value should not be exaggerated. The conflict between the CJEU and the Czech Constitutional Court was in fact collateral to a struggle between the Supreme Administrative Court and the Constitutional Court,24 in which a communication breakdown between the CJEU and the Constitutional Court played a role. While the CJEU refused (in accordance with its rules of procedure) to allow the Constitutional Court to defend its views in the preliminary proceeding initiated by the Supreme Administrative Court, the Constitutional Court did not consider submitting a preliminary question on its own. These specific circumstances might have attributed to some deficiencies in the theoretical elaboration of the ultra vires doctrine in the judgment, especially regarding the intensity of transgression of competences on the side of EU institutions in connection to the material core of the Constitution. Eventually, the parliament adopted a solution satisfying both the Constitutional Court’s and the CJEU’s jurisprudence.25

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  Constitutional Basis for EMU Membership and Judicial Review of EU Measures The Euro amendment of the Constitution26 regulates the Czech Republic’s participation in integrative international organisations’27 and allows for transfer of certain powers to such organisations and for application of the organisations’ law in the Czech Republic. As such, the Euro amendment also serves as the basis for participation of the Czech Republic in other integrative projects. The Constitutional Court proved active in ensuring and evaluating the constitutionality of EU law (Lisbon Treaty I and II) as well as enforcing the application of EU law by state authorities 21 Case C-399/09 Landtová v Česká správa sociálního zabezpečení, 2011 I-05573, ECLI:EU:C:2011:415. 22 See Richard Pomahač, ‘Soudní dvůr EU: Diskriminační podmínka pobytu v důchodovém pojištění’ (2012) 22(6) Právní rozhledy, 640; Pavel Kantořík, ‘Ukončí zákon č. 428/2011 Sb. letitý spor o československé důchody?’ (2012) 22 (7) Právní rozhledy, 254; Jan Komárek, ‘Slovenské důchody: druhá „válka soudů“ před Soudním dvorem EU’ (2011) 17 (10) Soudní rozhledy, 388; Filip Křepelka, ‘Českoslovenští důchodci v pasti práva Evropské unie’ (2011) 19(2) Časopis pro právní vědu a praxi 131. Robert Zbíral, ‘Czech Constitutional Court, judgment of 31 January 2012, Pl. ÚS 5/12. – A Legal revolution or ­negligible episode? Court of Justice decision proclaimed ultra vires’ (2012) 4 CML Review 1475. 23 Cf. a recent application of the ultra vires doctrine by the German Constitutional court, 2BvR 859/12 PSPP [2020]. 24 See Zbíral, ‘Czech Constitutional Court, judgment of 31 January 2012, Pl. ÚS 5/12’; Komárek, ‘Slovenské důchody: druhá „válka soudů“ před Soudním dvorem EU’. 25 The law abandons any reference to nationality or residence and grants the entitlement to anybody who receives a Czech pension and simultaneously receives a Slovak pension for his work in the CSFR. Sec 106a to Sec106c of the Law No 155/1995 Coll as amended by Law No 274/2013 Coll. This solution basically entitles the same group of people who would be entitled to the supplement if the nationality/residence requirement were retained. 26 Constitutional Act No 395/2001 Coll. 27 Art 10a of the Constitution.

102  Tomáš Dumbrovský (Sugar Quotas III,28 Reimbursement of Medications,29 Arrest Warrant,30 Pfizer31). The Court has equally annulled national measures for violating EU law (ultra vires in an act of national authorities in Sugar Quotas III, Reimbursement of Medications) and an act of an EU institution for violating the material core of the Czech Constitution (ultra vires act of the CJEU in Slovak Pensions XVII).

B.  Obligation to Join the Eurozone i.  The ‘Swedish Exemption’ The Czech Republic is not a member of the eurozone. It is considered a Member State with ­‘derogation’, meaning that the Czech Republic did not negotiate an opt-out from joining the eurozone and is, therefore, obliged to join as soon as it fulfils the convergence criteria. The data for the five years 2014 to 2018 show that the Czech Republic comfortably fulfils the convergence criteria.32 The criterion for price stability measured as harmonised index of consumer prices (HCIP) indicates a growth in percentage in 2014 of 0.4 (the reference value for which should not exceed 1.3), in 2015 by 0.3 (0.6), in 2016 by 0.6 (0.7), in 2017 by 2.4 (2.4), in 2018 by 2.3 (2.6). The criterion for the government financial position, which is composed of an obligation that the general government annual deficit does not exceed 3 per cent of GDP and an obligation that the overall general government debt does not exceed 60 per cent of GDP, was also attained. In 2014 the annual deficit-to-GDP ratio was (in percentage) -1.9, in 2015 -0.6, in 2016 0.7, in 2017 1.1, and in 2018 1.3, while the overall debt-to-GDP ratio was in 2014 42.2, in 2015 40.0, in 2016 36.8, in 2017 34.7, and in 2018 33.1, with a prediction of further decrease in subsequent years. The criterion for the convergence of interest rates measured as the long-term interest rate on government bonds has been comfortably fulfilled in the past five years. The annual yields on 10-year government bonds were (in percentages) 1.6 in 2014 (the reference value forwhich should not exceed 3.8), 0.5 in 2015 (3.8), 0.4 in 2016 (4.1), 0.9 in 2017 (4.8) and 1.5 in 2018 (5.4). Finally, the criterion for exchange rate stability expects the exchange rate to move within a fluctuation band of ±15 per cent without devaluation of the central rate and excessive pressures on the exchange rate. In the last five years, the exchange rate fluctuated closely around the central parity. A slight appreciation occurred in 2017 after the Czech National Bank (the central bank) discontinued its exchange rate commitment. Even then the rate fluctuated comfortably within the ±15 per cent band.33 Despite fulfilling the convergence criteria in reality, the Czech Republic does not formally ‘participate’ in the ERM II and the fluctuation of exchange rate is, therefore, not officially recorded. Such practice is legally dubious, to say the least. It relies on a Swedish precedent. While the UK

28 Pl ÚS 50/04 Sugar Quotas III [2006] No 154/2006 Coll. 29 Case Pl ÚS 36/05 Reimbursement of Medications [2007] No 57/2007 Coll. 30 Pl ÚS 66/04 European Arrest Warrant [2006] No 434/2006 Coll. 31 II. ÚS 1009/08 Pfizer [2009] N 6/52 SbNU 57. 32 The data are taken from a Joint document of the Ministry of Finance of the Czech Republic and the Czech National Bank, Assessment of the Fulfilment of the Maastricht Convergence Criteria and the Degree of Economic Alignment of the Czech Republic with the Euro Area, approved by the Government of the Czech Republic at its meeting on 22 December 2017, www.cnb.cz/miranda2/export/sites/www.cnb.cz/en/monetary_policy/strategic_documents/download/maastricht_assessment_2017.pdf. For 2017 and 2018 the data represent predicted values. 33 Ibid at 6.

EMU Integration and the Czech Constitution  103 and Denmark negotiated an opt-out from the participation in the third stage of the EMU,34 Sweden did not. In order to avoid its obligation to join the eurozone, Sweden has not ‘entered’ the ERM II and, consequently, has been failing to fulfil the convergence criterion on exchange rate fluctuation. The Commission has tolerated such practice. Neither Article 140 TFEU, nor the Protocol on the Convergence Criteria requires an EU Member State to formally enter the ERM II. Article 3 of the Protocol specifies that the criterion on participation in the Exchange Rate mechanism of the European Monetary System shall mean that a Member State has respected the normal fluctuation margins provided for by the exchangerate mechanism on the European Monetary System without severe tensions for at least the last two years before the examination.

The operation of the ERM II goes beyond the Treaty requirements. The entry in ERM II is based on an agreement between the ministers and central bank governors of the non-eurozone Member State and the eurozone Member States, and the ECB. The agreement sets the central exchange rate between the euro and the country’s currency, which becomes the baseline for monitoring the fluctuation. The General Council of the ECB monitors the monetary and exchange-rate policies and when necessary coordinates interventions together with the central bank of the noneurozone Member State. The fact that entry into the ERM II is, as the Commission explicitly admits, voluntary means that the Treaty obligation for the Member State with derogation to join the third stage of the EMU35 transforms into a voluntary decision as well. Yet, the interpretation of Articles 3(4) TEU and 140 TFEU not only requires the EU Member States with derogation to join the eurozone, but it also does not describe the ERM II as a mechanism that must be entered first. Article 140 TFEU requires the Commission and the ECB to report to the Council on the progress made by the Member State with derogation at least every two years. If the progress report finds that the convergence criteria, including the exchange rate fluctuation, are fulfilled, then the Council (following the procedural requirements of Article 140 (2) TFEU) shall abrogate the derogation of the Member State concerned.

ii. The Rebus sic Stantibus Argument The adoption of the Fiscal Stability Treaty and the ESM Treaty at the EU level raised a question whether they might be considered as a fundamental change of circumstances and whether this fact might revoke the obligation for the Czech Republic to adopt the common currency. An analysis prepared by the Office of the Government of the Czech Republic does not directly addresses the obligation, but suggests that a rebus sic stantibus situation may require a consent in a referendum for adoption of the euro.36 The CJEU dealt with the rebus sic stantibus principle in its 1998 decision in Racke v Hauptzollamt Mainz, which concerned the Cooperation Agreement between the Community

34 Cf the Protocol on Certain Provisions Relating to Denmark and the Protocol on Certain Provisions Relating to the United Kingdom of Great Britain and Northern Ireland. 35 This obligation stems from the fact that the Maastricht Treaty incorporated EMU into the common acquis which has to be adopted by all Member States. The Czech Republic expressly adopted the obligation to join the third stage of the EMU in its Accession Treaty. 36 Sekce pro evropské záležitosti Úřadu vlády ČR Odbor koncepční a institucionální, Smlouva o stabilitě, koordinaci a správě v hospodářské a měnové unii, April 2012, 40. From a different perspective – whether rebus sic stantibus can be used for exiting the eurozone see Robert Zbíral, ‘Pánbůh s eurem a zlé (Řecko) pryč: právní souvislosti opuštění eurozóny’ (2010) 16 Právní rozhledy, 580ff (the author rejects such option).

104  Tomáš Dumbrovský and Yugoslavia. According to the CJEU, the rebus sic stantibus principle forms part of customary international law and as such is binding upon the Community institutions and forms part of the Community legal order.37 The Vienna Convention on the Law of Treaties serves as guideline for the principle contents.38 The principle is an exemption from the maxim of pacta sunt servanda and must be interpreted restrictively.39 Three conditions must be fulfilled for the application of the rebus sic stantibus principle. First, a fundamental change of circumstances that was not foreseen by the parties is materialised. Second, the changed circumstances constitute an essential basis of the consent of the parties to be bound by the treaty. Third, the change radically transforms the extent of obligations of the parties.40 Moreover, the clausula rebus sic stantibus is not a mandatory provision.41 The parties to a treaty may exclude its application or provide for a different solution to a problem of fundamental change of circumstances, even implicitly.42 In Racke, the CJEU considered a treaty with a third state. An applicability of the principle in relation to the obligations of an EU Member State arising from the TFEU is even more complicated. The CJEU has repeatedly refused to apply other central principles of international law in the interpretation of the founding treaties. The constitution-like nature of the European legal order provides physical and legal persons with direct and extensive stakes in the functioning of the polity. As a consequence, a dense web of rights and obligations created by the founding treaties, jurisprudential development, and official practice involves not only states in their relations to each other, but also EU institutions and EU citizens. International law is insufficient to capture this reality. Yet, clausula rebus sic stantibus might have found its way into the EU legal order through legal tradition common to the Member States, for instance from private law, in the form of a legal principle. Even in that case, the non-mandatory character of the rebus sic stantibus clausula must be considered. Its invocation is apparently precluded by Article 50 TEU, which allows an EU Member State that is unable to perform its duties under the TFEU to leave the EU.43 Moreover, the application of clausula rebus sic stantibus is restrictive. First, the change that alters the obligations would have to be unforeseen at the time the Member State agreed to join the third stage of the EMU. It has been well established in the scholarship before the euro crisis that the weak fiscal coordination and weak enforcement mechanism regarding the public deficit and debt is a potential vulnerability of the EMU. Further development of the EMU to address these issues was more than likely. Second, clausula rebus sic stantibus can be applied only if the circumstances whose changed occurred constituted an essential basis of the consent of the parties to be bound by the treaty. The Czech Republic did not, at the time of the negotiations and ratification of its accession to the EU, raise any concerns about the obligation to join the third stage of the EMU or the circumstances under which such consent is made. All public records

37 Case C-162/96 Racke v Hauptzollamt Mainz, 1998, I-03655, ECLI:EU:C:1997:582, paras 46–50. 38 The Community is not a party to the Vienna Convention on the Law of Treaties and not even all the Member States ratified the Convention. 39 Gabčikovo-Nagymaros Project, Hungary v Slovakia, Judgment, Merits, ICJ GL No 92, [1997], at para 104 (the ICJ held that ‘the stability of treaty relations requires that the plea of fundamental change of circumstances be applied only in exceptional cases’). 40 Art 62 of the Vienna Convention on the Law of Treaties. 41 Mark E Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (Leiden/Brill, Nijhoff, 2009) 780, para 30. 42 Jens C Dammann, ‘The Right to Leave the Eurozone’ (2013) 48 Int’l LJ 125, 134ff. 43 Christian Calliess, ‘EUV Art. 50’ in C Calliess, M Ruffert (eds), EUV/AEUV, 4th edn (München, Beck, 2011) 468, para 13; Juliane Kokott, Mathias Pechstein, ‘Art. 53 EUV’ in R Streinz (ed), EUV/AEUV 2nd edn (München, Beck, 2012) 324, 325, para 2.

EMU Integration and the Czech Constitution  105 rather indicated that it was more than willing to join the club of the euro states. Third, the change must transform the extent of the obligations so radically that the performance of the obligations is extremely difficult for the party to the treaty and puts it in a disadvantageous position in relation to the other parties. Here lies the bottom of the problem. The Czech Republic, as we showed above, fulfils comfortably all the convergence criteria and it may easily fulfil the additional requirements adopted in response to the euro crisis. Indeed, the Czech Republic has adopted many reforms in the areas of accounting standards, public finances sustainability, and monetary policies that the eurozone requires (see section IV.A. below). What remains is the liability for debts of other states and independent monetary policy in case devaluation is needed. Both reasons are utterly inadequate for invoking the rebus sic stantibus principle. The potential liability for others’ debts represents, due to the size of the Czech Republic and its economic performance, a relatively low burden, and the loss of monetary flexibility has been clear at the time of the consent and has not been altered by the euro crisis.

C.  Ratification of the Article 136 TFEU Amendment and the Fiscal Compact The negative attitude towards euro crisis measures in the Czech Republic was signified by the refusal to sign the Treaty on Stability, Coordination and Governance (TSCG, Fiscal Stability Treaty) and the president’s refusal to ratify the European Council Decision on the Article 136 TFEU Amendment. As mentioned earlier, the Article 136 TFEU Amendment was ratified by both chambers of the parliament before June 2012. The president, however, refused to complete the process, citing objections to the ESM Treaty, to which the Czech Republic would be under pressure to accede with the eventual adoption of the euro. The election of a new president broke the impasse. In April 2013, the Czech Republic ratified the said European Council Decision and in April 2014, the ratification process of the Fiscal Stability Treaty was initiated (and concluded in April 2019). The Czech Constitution differentiates between integrative treaties (Article 10a of the Constitution) and ordinary treaties. Both types of treaty are qualified treaties and require the assent of parliament.44 An integrative treaty is defined as a treaty that transfers certain powers of Czech authorities to an international organisation or institution45 and requires for its ratification the assent of a three-fifths majority of all Deputies and a three-fifth majority of Senators present (which is the same as majority needed for a constitutional amendment).46 An ordinary treaty requires a simple majority in each chamber of the parliament. Although, the Article 136 TFEU Amendment does not transfer new competences to the EU and could be ratified as an ordinary treaty requiring a simple majority in the parliament, the parliament opted for Article 10a of the Constitution as the legal basis. It did so in order to declare a broad consensus on the issue and increase political pressure on the president to ratify the instrument.47



44 Art

49 of the Constitution. Other treaties do not require parliamentary assent. 10a of the Constitution. 39(4) of the Constitution. 47 Art 39(4) of the Constitution. 45 Art 46 Art

106  Tomáš Dumbrovský The legal basis became a substantive issue for the ratification of the Fiscal Stability Treaty. The Czech legal academic discussion focused on whether the Fiscal Stability Treaty is an integrative treaty or not, that is whether it (i) transfers competences to (ii) an international organisation or international institution. The Fiscal Stability Treaty was found to create new competences, in particular the commitment of contracting parties to support the proposals and recommendations of the Commission prepared within the excessive deficit procedure.48 Also, the Fiscal Stability Treaty contains decision-making rules that as a consequence create a specific international institution consisting in cooperation between the Commission and the contracting parties. The Legislative Council of the government concluded that the Fiscal Stability Treaty creates new competences for an international institution, which need to be transferred from the state. These new competences relate to the excessive deficit procedure that goes beyond the mandate of the TFEU, the Protocol on the Excessive Deficit, and the Stability and Growth Pact. As such, they go beyond solely implementing competences already transferred to the EU by the Czech Republic by its ratification of the Accession Treaty and the Lisbon Treaty.49 Furthermore, obligations that certainly represent a transfer of competences will be activated upon the accession of the Czech Republic to the eurozone, which the Czech Republic has an obligation to join. The accession will be based on that obligation and does not require a new treaty. At the same time, the Fiscal Stability Treaty, if ratified as an ordinary treaty, cannot be ‘re-ratified’ under Article 10a as integrative treaty. In 2014 the government and the parliament agreed on Article 10a of the Constitution as the legal basis and intended not to opt in to the parts of the Fiscal Stability Treaty that are otherwise applicable to the eurozone only.50 The treaty was approved by the Senate in 2014 but it was not considered in the Chamber of Deputies. With the expiration of the Chamber of Deputies term, the Senate’s assent expires as well. The treaty ratification process was inherently connected to a proposal for a constitutional amendment that would implement the Fiscal Stability Treaty (the so-called Fiscal Constitution draft). Since the political parties were unable to reach a consensus on the Fiscal Constitution draft, the ratification of the Fiscal Stability Treaty was put on hold as well. Only after the 2017 elections did the government adopt, in February 2018, a new resolution on Czech accession to the Fiscal Stability Treaty and submitted the treaty to the parliament for ratification. This time, the government considered the Fiscal Stability Treaty an ordinary treaty. The ratification was concluded in April 2019.51 Opting for lower majority is surprising considering the previous accord on the nature of the Fiscal Stability Treaty as a treaty transferring competences to an international body. However, the political reality had changed. While in 2014, the government presumed that it would have a greater majority for the ratification, in 2018–19 the government did not want to repeat the failure of the previous attempt in the Chamber of Deputies. It is unclear how the Fiscal Stability Treaty might be later elevated to an integrative treaty. An eventual referendum on the accession of the Czech Republic to the eurozone is an entirely internal matter, having no effect on the TFEU obligation to join the eurozone and unable to change the status of the Fiscal Stability Treaty. Given that the jurisprudence on functioning 48 Art 7 of the TSCG. 49 Cf Explanatory Report of the Government on the TSCG, Chamber of Deputies Document No 170/0, 7th Parliamentary term, April 2014 and Explanatory Report of the Government on the TSCG, Chamber of Deputies Document No 97/0, 8th Parliamentary term, February 2018. See also Aleš Gerloch, ‘Povaha Smlouvy o stabilitě, koordinaci a správě v Hospodářské a měnové unii sjednávané mezi zeměmi Eurozóny z hlediska požadavků stanovených ústavním pořádkem České republiky na proces její ratifikace, Acta Universitatis Carolinae’ (2012) Iuridica 99–108, 104. 50 Art 14/5 of the TSCG. 51 Chamber of Deputies Document No 97/0, 8th Parliamentary term. Senate Document No 271/0, 11th Parliamentary term.

EMU Integration and the Czech Constitution  107 of an integrative treaty (so far only the EU treaties have this status) in the Czech legal order is entirely different from an ordinary treaty, the lower status of the Fiscal Stability Treaty might cause interpretative problems. The Constitutional Court has not yet had the opportunity to evaluate how such integration measures taken outside the EU legal order affects its European doctrine, nor to consider the ‘different-status’ problem.

D.  Judicial Scrutiny of Economic Measures i.  Monetary Policy and Central Bank Independence In general, the Constitutional Court has afforded greater discretion to the political branches in areas including socioeconomic reforms. The Court has been explicit in the protection of the central bank’s independence from both the executive and the legislative power.52 Basic features of the central bank’s functioning are regulated by the Constitution. Although the Constitution allows ‘interventions into its affairs … on the basis of statute’, a statute cannot alter the basic features. In 2001, the Court struck down an amendment to the Czech National Bank Act, which specified price stability as the main purpose of the central bank, for being an unconstitutional limitation of the bank’s functioning. According to the Court, price stability was only part of monetary stability,53 which the Constitution entrusted to the bank. Shortly thereafter, the Constitution was amended to replace monetary stability with price stability as the main objective of the central bank.54 The Court found unconstitutional a provision of the Czech National Bank Act, which divided the bank’s budget in two parts. The first part of the budget, which pertained to the main purpose of the bank, was adopted by the Banking Council alone. The second part of the budget, concerning operative and investment costs, was adopted by the Banking Council with the consent of the Chamber of Deputies of the parliament. The Court ruled that the budgetary provision concerning the second part compromised the bank’s independence. Furthermore, the amendment to the Czech National Bank Act stipulated that the central bank sets the inflation target and the regime of exchange rate of the Czech currency towards other currencies ‘in consent’ with the government. The Court found that provision incompatible with the ‘instrumental aspect’ of the bank’s independence.55 The legislator attempted to entrust the government with the power to nominate members of the Banking Council, the vice-governors and the governor to the president, who has the constitutional power to appoint them. The Court struck down this statutory provision as well for interference with presidential prerogatives.56 After the amendment was struck down, the government attempted to get at least some control over the appointments to the Banking Council. It tried to do so by arguing that the president’s prerogative includes only the ordinary members of the Banking Council, while the appointments of the governor and the two vice-governors required the countersignature of the prime minister and that these three individuals become members of

52 The Constitution does not explicitly state independence of the Central bank and is silent on the possibility of concurrent decision-making with other powers. 53 The exact term used in the original version of the 1993 Constitution was ‘currency stability’. 54 Constitutional Act No 448/2001 Coll. 55 Pl ÚS 59/2000 [2001] No 278/2001 Coll Czech National Bank Act Amendment. 56 Ibid.

108  Tomáš Dumbrovský the Banking Council directly by virtue of the Czech National Bank Act (without the president appointing them Banking Council members first). According to the Court, such a construction was untenable. The Constitution clearly states that the president appoints all members of the Banking Council. The Court reiterated that the Constitution could not be reinterpreted based on an ordinary statute. Instead, an ordinary statute must always be interpreted in conformity with the Constitution (the principle of constitutionally conforming interpretation). Interestingly, the Court argued that a long-practiced constitutional course of action57 which corresponds to a specific value and institutional consensus on the part of constitutional bodies and which has repeatedly confirmed a certain interpretation of a constitutional provision, must be understood as a constitutional convention, which cannot be disregarded in construing the Constitution.58

ii.  Fiscal Measures The Constitutional Court adopted a restrictive approach towards fiscal, including tax, measures for their ‘primary political dimension’. An interference of the Court is warranted only for ‘compelling reasons and with great restraint’. Otherwise, the Court, in its own words, would violate the constitutionally protected free and voluntary formation of and free competition among political parties and would render the competition of political parties superfluous. First and foremost, it is their task, according to the mandate gained from their electorate and on the basis of their political priorities, to put forward the most beneficial methods for the implementation of the social rights enshrined in the Charter.59

The Constitution explicitly limits the scope of the Constitutional Court’s review of social rights, which ‘are not unconditional in nature, and they can be claimed only within the confines of the laws’.60 The 2007 reform on stabilisation of public budgets was a major test for the extent of the Court’s review. The Court formulated a reasonableness test that must apply in the case of social law. The test is methodically different from a test that evaluates proportionality with fundamental rights, ‘because social-economic aspects play a much greater role here’.61 Under that test, the Court, first, defines the significance and essence of the social right (essential content).62 Second, the Court evaluates whether the law effects such essential content. If it does, the Court evaluates whether the interference in the essential content of the right is based on an absolutely exceptional current situation, which would justify such interference. If it does not, then, in the third step, the Court evaluates whether the law pursues a legitimate aim. That is, whether the law does not arbitrarily and fundamentally lower the overall standard of fundamental rights. Finally, the Court weighs the question of whether the means used to achieve the aim are reasonable (rational), even if not necessarily the best, most suitable, most effective, or wisest.63

57 The Constitution has been in force for merely eight years. 58 Pl ÚS 14/01, Countersignature for appointing central bank governor. [2001] No 285/2001 Coll. 59 Pl ÚS 2/08 Stabilization of Public Budget – Sickness Benefits. [2008] No 166/2008 Coll. 60 Art 41 of the Constitution. 61 Pl ÚS 1/08 Stabilization of Public Budget – Health Care Fees.[2008] No 251/2008 Coll. 62 Art 4 (4) of the Charter of Fundamental Rights and Freedoms (when employing the provisions concerning limitations upon the fundamental right and freedoms, the essence and significance of these rights and freedoms must be preserved). 63 Pl ÚS 1/08, n 61 above.

EMU Integration and the Czech Constitution  109 In the case of health care, the essential content lies in the constitutional establishment of an obligatory system of public health insurance, which collects and accumulates funds from individual subjects (payers) in order to reallocate them based on the solidarity principle. The reform introduced a regulatory fee of one to two euro paid by patients directly at the health care facility they are being treated. The Court found that the legislator’s aim, that was to ensure higher quality of implementation of constitutionally guaranteed health care right, is legitimate, the law was able to meet this aim, and the means used did not appear to be unreasonable.64 The Court, on the other hand, struck down a provision that abolished the entitlement of employees to sickness benefits in the first three days of sick leave, for its incompatibility with the right to ‘adequate material security … during periods of work incapacity’ guaranteed by Article 30(1) of the (Czech) Charter of Fundamental Rights. According to the Court, the specific character of social rights is that they are dependent chiefly on the economic situation of the state. The level at which they are provided reflects not only the state’s economic and social development, but also the relation between the state and the citizen, founded on mutual responsibility and on recognition of the principle of solidarity. Since the benefits provided within the framework of social rights come from the state budget, the state must have the ability to set the specific conditions for such benefits. ‘[It] cannot afford the irresponsibility of becoming a debtor which is incapable of honouring its engagements. These circumstances may not, however, negate the very existence of the specific social rights or preclude … their enjoyment’. An attempt of the legislator to deal with abuses of sickness benefits does not warrant a blanket sanction against all categories of employees. The Court criticised the fact that employees on sick leave without pay had to contribute to health care insurance. ‘The rights of employees were violated to a degree reaching a constitutional dimension. The system of health insurance should not serve to cover the deficit in the state budget.’65 Two years later, the legislator again withdrew sickness benefits for the first three-days of sick leave, but this time accompanied by exemption from paying health care insurance for the same period. The Court upheld such a solution, which passed the reasonableness test. The Court repeatedly evaluated the conditions for reimbursement for medical services from health care insurance. This evaluation dealt with the appropriate level of financial contribution by patients in excess of their health care insurance premium while conforming with the stipulation that ‘citizens have the right, on the basis of public insurance, to free medical care and to medical aids under conditions provided by law’.66 According to the Court, the reason for guaranteeing the right on the constitutional level is not, as in the case of fundamental rights, to delimitate the extent of individual liberty the state cannot encroach on, but to oblige the state to act positively to ensure conditions for dignified life and equal opportunities. The state must provide at the statutory law level effective means for the realisation of the aim forming the essential content of social rights and, subsequently, to realise this aim in the application of the laws by state authorities.67 The regime governing health care rights also applies to retirement rights.68 The Court acknowledged that the construction of a pension system is ‘fully in the hands of the legislator’.

64 Ibid. 65 Pl ÚS 2/08, n 59 above. 66 Art 31 of the Charter of Fundamental Rights and Freedoms. 67 Pl ÚS 3/15 Mechanism for calculating the level of reimbursement of medical aids from health care insurance [2017] No 231/2017 Coll. 68 Art 30 (1) of the Charter of Fundamental Rights and Freedoms.

110  Tomáš Dumbrovský However, the application of the legislation cannot forfeit the essential content of the right to oldage material security.69 The Court also clarified certain procedural issues concerning the annual state budget act. The budget act is a specific constitutional category of law, alongside, for instance, electoral law, and is governed by a special legislative procedure. Most importantly, the act is adopted exclusively by the Chamber of Deputies. The legislator can neither incorporate into the act provisions that do not have a material connection to the state budget,70 nor amend the annual state budget act by ordinary law.71 The potential negative financial consequences for the state resulting from a failure to adopt a law with important budgetary consequences does not constitute an exceptional situation warranting a declaration of a state of legislative emergency and pass such laws through an expedited procedure, thus, limiting the rights of the political opposition.72 In tax matters, the Court held that the sovereignty of the state did not empower the legislator to impose taxes arbitrarily. The legislator must support its decision by objective and rational criteria.73 The principle of non-discrimination requires proportional tax burden and the taxation shall respect the principle of horizontal justice (subjects with high incomes shall be taxed irrespectively of the source of that income).74 The Court also struck down a tax imposed retroactively on the state benefits paid to participants in commercial banks’ building savings.75 Economic rights (the right to engage in enterprise and pursue other economic activity76) follow the same regime as social (and cultural) rights. The extent of the Court’s power to review is lower as the discretion of the legislator widens. The effect of the solution chosen by the legislator must not create a barrier to the exercise of the right (‘suffocating effect’).77 Repeatedly, the Court was confronted with attempts by the legislator to freeze the growth of judges’ pay or to outright reduce them. An intrusion of the state into the material security of judges must be proportional and justified by an extraordinary situation, such as grave financial difficulty of the state.78 The Court has also been instrumental in liberalising the housing market. After the 1989 revolution, the ownership of apartment buildings that had been expropriated by the Communist regime was restituted to their original private owners. However, tenants occupying the buildings had contracts for indefinite period. For social (and consequential political) reasons, the rent was regulated heavily in relation to the market prices, causing the owners (landlords) difficulty in repairing and developing their property, and sometimes in sustaining their ownership obligations. In 2000, the Court called upon the legislator to provide a legislative possibility for a conditional unilateral increase of rent within one and a half years.79 Failing to do so, the Court in 2006 concluded that the situation was no longer tolerable. It held that it was not permissible to shift the social burden of one group of people (tenants) to another group (landlords) and that the

69 III. ÚS 1559/17 [2018]. 70 Pl ÚS 21/01 Annual Budget Act [2002] No 95/2002 Coll. 71 Pl ÚS 24/07 Stabilization of Public Budgets – Tax Amendment [2008] No 88/2008 Coll. 72 Pl ÚS 55/10 State of Legislative Emergency [2011] No 80/2011 Coll. 73 Czechoslovak Constitutional Court, Pl ÚS 22/92, Sbírka usnesení a nálezů ÚS ČSFR, 1992, pp 43-44; Pl ÚS 18/15 High-Earning Pensioners [2016] No 271/2016 Coll. 74 Pl ÚS 18/15, n 73 above. 75 Pl ÚS 53/10 Building Savings [2011] No 119/2011 Coll. Building savings are a type of savings that is intended to be used for purchase or reconstruction of real estate. 76 Art 26 (1) of the Charter of Fundamental Rights and Freedoms. 77 Pl ÚS 26/16 Electronic Evidence of Sales [2017] No 8/2018 Coll. 78 Eg, Pl ÚS 13/08, [2010] No 104/2010 Coll. Pl. ÚS 12/10, [2010] No 269/2010 Coll. Pl. ÚS 28/13 [2013] 79 Pl ÚS 3/2000. [2000] No 231/2000 Coll.

EMU Integration and the Czech Constitution  111 exiastence of different categories of landlords (those subject to rent control and those who were not) was discriminatory. In the absence of a statutory solution, the unconstitutional situation had to be remedied by application of ‘the principles of constitutional law regulation’. The Court required ordinary courts to ensure proportional protection of landlords’ subjective rights. Despite the absence of the specific regulations envisaged in the Civil Code, ordinary courts were required to permit an increase in rents, depending on local conditions, to prevent discrimination.80

III.  Constitutional Obstacles to EMU Integration A.  Material Core of the Constitution EU law has effect in the Czech legal order based on Article 10a of the Constitution that provides for a transfer of competences to the EU through the Accession Treaty. According to the Constitutional Court, EU law is applicable law for ordinary courts. The Constitutional Court on the other hand will enforce EU law only when its ignorance by ordinary courts (either by not applying the EU law at all or applying it wrongly) is so serious and flagrant that it amounts to a breach of the Constitution.81 EU law functions autonomously in the Czech legal order and in the event of conflict with constitutional provisions, a constitutional interpretation that affords full effect to EU law must take precedence (principle of conform interpretation or indirect effect). However, there are limits to such EU law effects. The Constitutional Court has acknowledged that the level of human rights protection on the EU level is comparable to the level of protection afforded by the Czech Constitution. However, the Constitutional Court has not excluded ad hoc evaluations. The limits to participation in further EMU integration rest in the material core of the Constitution. The Constitutional Court repeatedly emphasises that the prohibition of changes in the essential requirements for a democratic, rule-of-law state has normative consequences.82 These essential requirements form a material core of the Constitution and the Court ensures its inviolability. The Court struck down a constitutional act for violating the material core.83 It has also elaborated on the limits (1) to the transfer of competences from the Czech Republic and (2) to the application of EU law in the Czech Republic.84 The content of the material core follows from the values protected by Article  1 of the Constitution, which defines the Czech Republic as a sovereign, unitary, and democratic state governed by the rule of law, founded on respect for the fundamental rights and observing o ­ bligations resulting from international law. At the same time, the Constitutional Court has given a limited answer on the content of the material core, avoiding a general definition. According to the Court, it follows from Article 10a(1) that only certain powers may be transferred by a treaty to an international organisation. In connection with Article 1(1) and Article 9(2) of the Constitution, the transfer of powers cannot go as far as to violate the very essence of the Czech Republic as a sovereign and democratic state based on the rule of law, founded on respect for the rights and freedoms of human beings and of citizens, or to change these essentials. The Court admits that the notion of a ‘sovereign state’ is not uncontested and it is difficult to give an abstract definition. Its content is necessarily 80 Pl ÚS 20/05 Rent Control [2006] No. 252/2006 Coll. Cf also III. ÚS 2568/08 [2012] N 36/64 SbNU 429, IV. ÚS 575/07 [2007]. 81 II. ÚS 1009/08 Pfizer, n 31 above. 82 For summary of its material-core doctrine see Pl ÚS 19/08 Lisbon Treaty I, n 9 above para 93. 83 Pl ÚS 27/09 Parliamentary Elections (Case Melčák) [2009] 318/2009 Coll. 84 For a detailed analysis see Tichý & Dumbrovský, Czech Republic, in 11 above.

112  Tomáš Dumbrovský relative. This is because it develops with the progress of humanity and can be assessed only at a concrete point in time. However, the limits should be left primarily to the legislature to specify, because this is a priori a political question which provides the legislature wide discretion; interference by the Constitutional Court should come into consideration as ultima ratio, i.e., in a situation where the scope of discretion was clearly exceeded.85

In the context of EMU integration, a potential review would likely focus on fiscal and monetary sovereignty and democratic guarantees of public power exercise. The prior consent given in the Accession Treaty to join the third stage of the EMU would have to be considered. The Court’s jurisprudence regarding economic and social rights analysed above86 may come into play in case the Czech Republic is subject to austerity measures comparable to those implemented in Greece and Portugal during the euro crisis. The Court emphasised that the level of enjoyment of these rights depends on the socioeconomic situation of the state. It seems that even the essential content of these rights may be compromised in an exceptional situation. It is yet to be clarified to what extent the essential content of social rights belongs to the material core of the Constitution. The Court hinted that the constitutional guarantees of social rights are an expression of the nature of the state and that they are intertwined with human dignity.

B.  Judicial Review of Constitutionality i.  Review of Legislation and Other Exercises of Public Power The Constitutional Court exercises ex ante review, which is by definition abstract, and ex post review, which is either abstract or involves a concrete violation of fundamental rights and freedoms. The Court has jurisdiction to review the constitutionality of statutes and other legal acts or omissions of public authorities infringing constitutional rights, and acts of central public bodies encroaching upon matters of regional self-governance. Ordinary courts apply the Constitution directly. They are authorised to judge whether enactments other than statutes are in conformity with statutes or qualified treaties. If an ordinary court concludes that a statute which should be applied is in conflict with the constitutional order, it shall submit the matter to the Constitutional Court.87 This constitutional arrangement has been affected by EU law. The obligation of ordinary courts to submit a statute conflicting with EU law to the Constitutional Court for review is unclear. As follows from EU law, if the statute is in conflict with a provision of EU law, an ordinary court will apply EU law directly, putting aside the conflicting Czech law, or interpret the Czech provision in conformity with EU law when possible.88 Since the Constitutional Court’s ultra vires doctrine interprets the procedure for annulment of statutes and other legal enactments within the constitutionality review as encompassing situations when state authorities act in the area of powers that were transferred to the EU,

85 Pl ÚS 19/08 Lisbon Treaty I, n 9 above, para 109. 86 In particular, right to free medical care based on public insurance, right to adequate material security in case of work incapacity and in old age, right to assistance necessary to ensure basic living standard, and right to non-discriminatory taxation. 87 Art 95 of the Constitution. 88 In compliance with the rules on preliminary reference procedure and acte clair and acte eclairé doctrines of the CJEU, an ordinary court may or must submit a preliminary question to the CJEU; this is independent of ordinary courts’ responsibilities under the Constitution.

EMU Integration and the Czech Constitution  113 a statute or other legal enactment, such as government regulation, which is in conflict with EU law, is potentially in conflict with the Constitution as well. However, the Constitutional Court seems to condition the ultra vires review to certain intensity of the violation of constitutionality. It, therefore, remains to be clarified by the Constitutional Court, whether the ordinary courts’ obligation to initiate constitutionality review applies to every situation where a Czech statutory provision conflicts with EU law. Also, it is not clear whether the principle of priority of constitutionally conforming interpretation over abrogation has any consequence for the ordinary courts. That is, it is not clear whether an ordinary court must submit a statute for constitutionality review even if EU law-consistent interpretation is possible. In case of other legal enactments, such as government regulation, ordinary courts are not empowered by the Constitution to initiate the constitutionality review. In such cases ordinary courts simply do not apply the conflicting provision. Ex ante abstract review of statutory provisions can be initiated by the president, a group of 41 deputies, or a group of 17 senators. Individuals (natural and legal persons, including a representative of self-governance unit) may submit a petition for annulment of a statute or another legal enactment as part of their constitutional complaint. If they do not do so, a panel of the Constitutional Court, which is deciding the case, may initiate the review of constitutionality and forward the matter to the full court. An applicant must first exhaust all legally available procedural remedies for the protection of his or her rights. The Court may disregard this condition if the significance of the complaint extends substantially beyond the personal interest of the complainant. The Constitutional Court Act provides for a special procedure for annulment of statutes and other legal enactments if an international court finds that an obligation resulting for the Czech Republic from a treaty has been infringed by the encroachment of a public authority if such infringement was based on the statute or other legal enactment in force. The government has an obligation to initiate such proceedings before the Constitutional Court if there is no other way to ensure that the conflicting law will be repealed or amended.89

ii.  Review of Treaties The Euro-amendment of the Constitution entrusted the Constitutional Court with reviewing the conformity of treaties with the constitutional order.90 Prior to the ratification of a qualified treaty (a treaty transferring powers to an international organisation or institution and treaties requiring ratification of parliament), the Constitutional Court has jurisdiction to decide on the treaty’s conformity with the constitutional order. Ratification may not be concluded until the Constitutional Court gives its judgment. The right to initiate the review is entrusted to different constitutional actors in different stages of the ratification process.91 The Court reviews only the treaty provisions contested by the petitioner, who bears the burden of proof. That means that a judgment on a treaty’s compliance with the constitutional order represents res judicata only as to the provisions and arguments considered. Other authorised persons may submit their own petitions with different argumentation or for provisions not previously contested and reviewed. Thus far, only the Lisbon Treaty has been subjected to such a review. 89 § 118 of the Constitutional Court Act. The basis for international court jurisdiction is irrelevant (treaty based or forum prorugatum). An individual may also submit a petition for rehearing if an international court’s decision conflicts with a previous Constitutional Court’s judgment in his or her case. The petitioner may ask the Court to repeal the conflicting law. Ibid, § 119. 90 Art 87 (2) of the Constitution. 91 N 7 above

114  Tomáš Dumbrovský The scope of the review encompasses conformity of a treaty with the constitutional order, including integrative treaties and treaties amending primary EU law. The procedure does not distinguish between ordinary treaties under Article 49 of the Constitution and integrative treaties under Article 10a of the Constitution. Moreover, at the time of review (ahead of ratification), a treaty amending primary EU law does not yet form part of EU law and the Court is, therefore, not bound by the primacy of EU law or the obligation of conform interpretation. Since often it is difficult to separate the acquis communautaire, especially a codification of established rules, from entirely new provisions, the Court emphasised that the material core of the Constitution creates the ultimate limits for transfer of competences and must be the primary focus of the Court’s review.

C.  Ultra Vires Doctrine The Constitutional Court’s ultra vires doctrine does not seem to be conditioned upon a violation of the material core of the Constitution. The Court intervenes only as ultima ratio, if ordinary procedures for correcting an ultra vires act of public power fail and the violation of the Constitution is flagrant. That means that the intensity of the failure triggering the ultra vires review must be as high as to threaten the ‘constitutionality’, which the Court is the guarantor of, but does not need to be of such intensity as to violate the material core of the Constitution. The standard is lower for reviewing domestic acts of public power violating EU law. The Court has used the ultra vires doctrine in order to invalidate government regulations for exercising powers transferred to the EU and, thus, violating the Constitution. The review of EU acts requires greater constitutional violations because EU law creates a legal order with its own system of remedies, including judicial review. The Constitutional Court should wait for the CJEU decision on the contested issue. Only when the CJEU lacks jurisdiction over an act of an EU institution and no other remedy exists under EU law, the Constitutional Court may review the act without previous CJEU intervention. Exceptional circumstances may justify an early action by the Constitutional Court, if the consequences of the violation of the material core of the Constitution will be irreversible. A specific situation occurs when the CJEU acts ultra vires itself. Here, only the violation of the material core of the Constitution, which is beyond reach of any authority of public power, can warrant the review.

D.  Limits to Integration Outside the EU Legal Order The general nature of Article 10a of the Constitution makes it also applicable to integration outside the EU legal framework. There is no apparent reason why the established European doctrine on the limits of transfer of competences to an international organisation or institution and on the effect of integrative treaties in the Czech constitutional order should not apply. Given that in the European Arrest Warrant case the Constitutional Court applied its European doctrine without much alteration to the then third, prevailingly intergovernmental, pillar of the EU confirms such view.92 The same limits that apply to further integration within the EU legal order shall apply to any integration outside the EU legal order. The issue that might arise is comparability of the level of protection of fundamental rights and freedoms, if such integrative



92 Pl

ÚS 66/04 European Arrest Warrant n 30 above.

EMU Integration and the Czech Constitution  115 organisation lacks sufficient instruments, foremost a judicial review, to ensure these rights and at the same time is able to directly affect individual rights of legal or physical persons.

E.  Position of the Czech Republic towards the 2017 EMU Reform Proposals and Possible Constitutional Obstacles In reaction to the proposed package of EMU reforms, the Czech government stressed that ­deepening of the EMU had to respect the principle of equal treatment and be discussed in the format of all EU Member States. It has appreciated openness of the reforms to non-euro Member States and their accession to these measures on a strictly voluntary basis and, with reservations, supported budgetary increase for the Structural Reform Support Programme (SRSP) and the inclusion of Fiscal Stability Treaty into EU law. The government, however, took a sceptical approach to a number of key proposals. It did not support the establishment of the post of European Minister of Economy and Finance and the creation of the European Monetary Fund. It considered the timetable for completing the EMU too ambitious, given long-standing differences on number of proposals between the EU Member States. Regarding new budgetary tools and the ESIF performance reserve, the government, without specifying further, stated that the proposals would need to clarify a number of uncertainties.93 The Chamber of Deputies and the Senate supported the government’s position in general. It warned that the reform package would bring another substantial change in the architecture of the eurozone, ‘which already differs greatly from the situation in which the Czech Republic committed itself to adopting the common European currency’, alluding to rebus sic stantibus rationale. The lower chamber of the parliament admitted that the stability of the EMU is a strategic interest of the Czech Republic. However, it noted that it was not in the ‘national interest of the Czech Republic to deepen EMU by transferring powers from the national level to the EU, particularly in the fiscal and banking sector’. It too rejected the creation of the position of the European Minister of Economy and Finance, which would, in its view, require a change of the primary EU law.94 The Senate warned that the proposed macroeconomic stabilisers might weaken efforts to address the issues through national reforms and consequently weaken Member States’ responsibility. It considered increasing the financial volume of the SRSP necessary, but insisted that Member States’ co-funding for these purposes should be voluntary. The Senate also supported the intertwining of the cohesion policy with the European semester, without, however, diverting from the current cohesion politics practice. By insisting that Council recommendations had to be narrowly connected to the cohesion politics intervention, the Senate dismissed any possible use of such instruments for a rule-of-law conditionality.95 From a constitutional point of view, any voluntary contribution to a common budget or a fund (European Monetary Fund, European Investment Protection Scheme, European Unemployment Reinsurance Scheme, rainy-day fund and other proposals) that are of such proportion as not to endanger the basic obligations of the Czech Republic towards its citizens and others under its jurisdiction (defined primarily as obligations corresponding to constitutional rights of natural and legal persons) should not pose any constitutional problems, providing that the rules of 93 Framework Position of the Government of the Czech Republic on the Commission proposals for deepening Economic and Monetary Union, approved by the government on 7 Feb 2018. 94 Committee for European Affairs, Chamber of Deputies of the Parliament of the Czech Republic, Resolution No 41, 15 Feb 2018. 95 Committee for European Union Affairs, Senate of the Parliament of the Czech Republic, Resolution No 173, 8 March 2018.

116  Tomáš Dumbrovský further distribution or redistribution are well defined in advance. The issue of constitutionality of any risk-sharing may arise only if the Czech Republic undertakes potentially unlimited financial obligations triggered in case of economic crisis in other EU states, without being able to control their volume (ex ante or ex post). The same rationale applies to opposite transfers comprising conditionality of financial assistance from the EU budget. Since the proposal for a Regulation amending Regulation (EU) No 1303/2013 laying down common provisions on the European Funds envisaged the assumption of obligations by a Member State on contractual basis, it would not be different from a situation when a government seeks such reform on its own. Any statutory changes to execute such reform would need parliamentary support. In the case of an EMEF with enhanced powers over national fiscal policies, it would require a Treaty change that would qualify as an integrative treaty requiring constitutional majority in both chambers of parliament and Constitutional Court jurisdiction over its constitutionality. The only limitation, in such a case, is the material core of the Constitution, which the Court has been unwilling to sufficiently define in advance, making it difficult to assess whether the EMEF might compromise the material core. However, if the powers of the EMEF (even if including a budgetary veto) are based on rules of budgetary responsibility and not giving the EMEF discretionary power, then there should not be any constitutional issue. This is because it would be the constitutionality of the government’s or the parliament’s conduct that would matter, not the EMEF veto as such. The Czech Republic’s participation in the Banking Union subject to the ECB’s supervision powers might be constitutionally problematic. As an institution of a non-eurozone Member State, the Czech National Bank is constitutionally required to fulfil its duties independently. Although interventions in its affairs are permitted on statutory basis, its primary task of price stability maintenance cannot be compromised by the lack of tools to achieve such aim. It would require a thorough analysis to consider the extent of the proposals’ compatibility with Article 98 of the Constitution whether a statutory amendment would suffice or a constitutional amendment would be necessary. As long as the reform package is compatible with primary EU law, an ultra vires issue should not arise.

IV.  Constitutional Rules and Practice on Implementing EMU Related Law A.  General Remarks The Czech Republic was subject to excessive deficit procedure (EDP) twice, between 200496 and 2008 and between 2009 and 2014. The Commission’s recommendations within the EDP, in the biannual Convergence Reports, and, after 2013, more substantively within the European Semester informed the monetary and fiscal reforms in the Czech Republic. The legislative changes included caps on compensation of public sector employees, reduction of social expenditure, the introduction of partial health charges, and a range of tax measures aimed at higher budgetary revenues.97

96 The EDP was initiated two months after the Czech Republic’s accession to the EU. 97 Council Decision of 3 June 2008 abrogating Decision 2005/185/EC on the existence of an excessive deficit in the Czech Republic (2008/563/EC).

EMU Integration and the Czech Constitution  117 A major reform package focused on stabilisation of public budgets was introduced in 2007. The banking system was heavily restructured and refinanced from state resources following the 1996–97 banking crisis, which occurrence was largely due to a weak legislative framework during the economic transformation in the first half of the 1990s. Consequently, during the euro crisis the banking system remained relatively healthy. Since the Czech Republic is not a member of the eurozone, it does not participate in the EFSF, the ESM Treaty, or the Euro Plus pact and is not bound by most of the provisions of the Six Pack and Two Pack legislation. The Czech Republic acceded to the Fiscal Stability Treaty in April 2019 and declared not be bound by Titles III and IV. Regarding the EFSM, which applied to all EU Member States, the Czech Republic guaranteed the mechanism loans to Ireland and Portugal in the amount of approximately 1.25 per cent (the Czech Republic’s share of the EU budget). In particular, the Czech Republic guaranteed the loans in the amount of CZK 6.7 billion (around 258.3 million euros) in the case of Ireland and CZK 7.7 billion (around 297 million euros) in the case of Portugal.98 There are structural reasons why participation in new measures is approached cautiously. The public debt and annual budget deficits are well within the convergence criteria due to the accumulation of factors such as higher budgetary revenues (resulting from tax reforms and more efficient tax collection), GDP growth, and relative stabilisation of mandatory expenditure of the state budget. Furthermore, the EDP ended in 2014. Inflation remains low, the Czech currency has been stable for a considerable time, the Czech Republic has not been subject to the Macroeconomic Imbalance Procedure, and the banking system is functioning well.

B.  Modes of Participation of the Parliament and the Government in EU Decision-making Article 10b of the Constitution obliges ‘the government to inform the Parliament, regularly and in advance, on issues connected to obligations resulting from the Czech Republic’s membership in [the EU]’. With an exception, which is mentioned below, the parliament may exercise only an indirect influence over a member of the government representing the Czech Republic at a Council meeting. The Senate’s and the Chamber of Deputies’ positions must be ‘reflected’ by the Czech authorities, when articulating positions in Council meetings, especially during the preparatory stage of the decision-making process. This applies especially to the guarantor (a ministry or an executive agency responsible within the given area) and the Committee for the EU, which is an organ of the government. If the parliament initiates a discussion on an EU legislative act, this precludes a government member to participate in the decision-making process on the matter at the EU level (the so-called reservation of parliament).99 Furthermore, a committee of the Chamber of Deputies can summon a member of the government and demand information regarding the position of the Czech Republic at the Council on the matter at hand.100 The prior consent of the Chamber

98 Czech National Bank, Hospodářská a měnová politika v EU (Economic and Monetary Union in the EU), available at www.cnb.cz/cs/o_cnb/mezinarodni_vztahy/cr_eu_integrace/. 99 § 119d of the Act No 107/1999 Coll, Procedural Rules of the Senate. 100 § 109b of the Act No 90/1995 Coll, Procedural Rules of the Chamber of Deputies; Sec 29 of the Government Directive on Dealing with EU Documents that form an annex to the Government Resolution No 665 from 6 August 2014.

118  Tomáš Dumbrovský of Deputies and the Senate is required in specific matters listed in the rules of procedure of the two chambers.101 The Senate and the Chamber of Deputies either grant the prior consent or refuse to grant it. In the latter case, the president of the respective chamber informs without delay the government, the president of the other chamber, and the presidents of the Council, the European Council and the European Commission of the refusal to grant consent to the intended legislation.102 A specific procedure applies to discussions of a draft act amending part III of the TFEU under the simplified procedure of Article 48(6) TEU.103

C.  Implementation of Applicable EMU Law i.  European Semester, Macroeconomic and Fiscal Forecasts, Medium-Term Budgetary Frameworks and National Fiscal Council The Czech Republic implemented the rules on the European Semester in 2011, under the applicable parts of the Six Pack and Two Pack measures. Since the budgetary process followed a similar schedule, not many changes were needed (particularly the preparation of medium-term expenditures frameworks had to be expedited).104 The 2010 accounting reform and adaptations of the practice on macroeconomic and fiscal forecasts implemented part of the obligations set by Directive 2011/85/EU.105 The 2017 reform introduced the remaining obligations regarding data collection on public finances.106 The requirements on medium-term budgetary frameworks were introduced in 2003 through a system of fiscal targeting and requirement that medium-term fiscal frameworks and medium-term budgetary forecast were prepared for the state budget and state funds, including a numerical fiscal rule for their preparation. The 2017 reform then consolidated the practice and applied it to all public institutions. Public institutions must prepare, as part of their annual budgets, mediumterm budgetary forecasts for two years ahead of the budgetary year.107 An independent review of the government’s forecasts was adopted only in 2017. The reform on fiscal responsibility rules created a Committee for Budgetary Forecasts (CBF) and National Budgetary Council (NBC). The CBF is composed of seven NBC-appointed members with threeyear mandates. The CBF evaluates the probability of reaching set targets in the macroeconomic and fiscal forecasts of the Ministry of Finance. The NBC is an independent expert institution composed of three members with six-year mandates. They are appointed by the Chamber of Deputies on the proposal of the government, the Senate, and the Czech National Bank, each

101 § 109i of the Act No 90/1995 Coll, Procedural Rules of the Chamber of Deputies and § 119k and § 119m of the Act No 107/1999 Coll, Procedural Rules of the Senate. This includes decisions of the European Council under Art 31(3) TEU, Art 48(6) and (7) and the decisions of the Council under Arts 81(3), 153(2), 192(2), 312(2), 333 (1 and 2) a 352 TFEU (if not concerning measures necessary for the functioning of the internal market). 102 § 109j and § 109k of the Act No 90/1995 Coll, Procedural Rules of the Chamber of Deputies; § 119l and § 119n of the Act No 107/1999 Coll, Procedural Rules of the Senate. 103 § 109l of the Act No 90/1995 Coll, Procedural Rules of the Chamber of Deputies; Sec 32 of the Government Directive. 104 Amendments to the Act No 218/2000 Coll, on budgetary rules, and Ministry of Finance bylaw no 449/2009 Sb. and Ministry of Finance regulation no 473/2013. 105 Amendment to Act No 563/1991 Coll, on accounting; amendments to Ministry of Finance bylaw no 410/2009 Coll, amendments to the Act No 218/2000 Coll, on budgetary rules, amendments to Ministry of Finance bylaw no 449/2009 Sb., and Ministry of Finance regulation no 473/2013. 106 Act No 25/2017 Coll, on Collection of Selected Data for the Purposes of Monitoring and Directing Public Finances. 107 Act No 23/2017 Coll, on Rules of Budgetary Responsibility.

EMU Integration and the Czech Constitution  119 institution proposing one member. The NBC supervises observation of the fiscal rules, ascertains and announces the level of public debt, and prepares a report on long-term sustainability of public finances for the Chamber of Deputies.108

ii.  Fiscal Responsibility Rules Efforts to introduce rules on fiscal responsibility started in 2009.109 The government envisaged from the outset that the implementation of the Fiscal Stability Treaty would be part of a larger constitutional reform on fiscal responsibility. In 2012, two constitutional amendments were submitted by the government to the parliament. One of them was a constitutional bill on fiscal responsibility setting the balanced budget rules, medium-term budgetary objective and sanction mechanism for both the state and territorial self-governments’ budgets.110 The other was a constitutional bill amending the competences of the Supreme Auditing Office empowering it to audit organs of territorial self-government (regions and municipalities) and private companies. Implementing (ordinary) bills related to the constitutional bills were submitted to the parliament in June 2013. These were the government Bill on the Rules on Fiscal Responsibility111 and the government Bill Amending Selected Laws in Connection with Adoption of the Law on the Rules on Fiscal Responsibility.112 The laws aimed to create an independent Committee for Budgetary Forecasts evaluating the economic and budgetary forecasts of the central government and the territorial self-governments. Realistic or conservative forecasts would represent the basis for the preparation of an annual budget. The laws would further introduce sanctions for territorial selfgovernment units (regions and municipalities). If a territorial self-government unit exceeds by 60 per cent the average revenues accrued in the preceding four years, the Ministry of Finance would suspend that unit’s share of VAT and income tax revenues with an amount corresponding to the breach of the unit’s obligation. The Fiscal Constitution bill expired with the dissolution of the Chamber of Deputies and the constitutional bill amending the powers of the Supreme Auditing Office was rejected in the Senate. After the 2013 general election, the government submitted to the parliament a new constitutional bill on fiscal responsibility and an implementing bill in January 2015.113 The constitutional bill created a debt brake that is triggered when the debt reaches 55 per cent of GDP. In that case, the government would have to propose a balanced state budget and a state funds budget. Self-governing units would be obliged to enact a balanced budget, unless the deficit could be covered by previous-years surplus. Several exceptions were envisioned in line with the Fiscal Stability Treaty. The indebtedness of self-governing units should not exceed 60 per cent of their income for the preceding four years. The bill included a correction and enforcement mechanism for self-governing units in case of excessive debt in the form of partial suspension of tax redistribution (around some 500 municipalities were in such situation). Finally, the bill aimed to improve the transparency of budgetary documents of self-governing units and semi-budgetary organizations. However, the constitutional bill and the implementing bills were rejected in the third reading in the Chamber of Deputies in October 2016.



108 Ibid.

109 Chamber

of Deputies of the Parliament, Document No 960, 5th Parliamentary Term. of Deputies of the Parliament, Document No 821/0, 6th Parliamentary Term. 111 Chamber of Deputies of the Parliament, Document No 1097/0, 6th Parliamentary Term. 112 Chamber of Deputies of the Parliament, Document No 1098/0, 6th Parliamentary Term. 113 Chamber of Deputies of the Parliament, Document No 411/0, 7th Parliamentary Term. 110 Chamber

120  Tomáš Dumbrovský Eventually, the government opted for ordinary laws, instead of constitutional bills to implement fiscal stability rules. A series of laws, including the Rules of Budgetary Responsibility Act, the Act concerning collection of public finances data, and amendments to acts regulating designation of tax revenues and regional and local self-governments budgets, were adopted by the parliament in 2017 and entered into force in January 2018.114 They implement the remaining obligations stipulated by Directive 2011/85/EU and set rules of fiscal responsibility for the state and self-governing units. The debt break rule, which seeks to keep the public debt below 55 per cent of GDP, requires public budgets to be adopted without a deficit. Budgetary deficits are allowed only if they can be financed from savings or, in the case the deficit results from a pre-financed EU fund project, by a loan. When the public debt reaches 60 per cent of GDP, the government must propose measures able to lower the debt by 5 per cent of the difference between the actual amount of debt and the 60 per cent threshold and to lower the structural deficit by 0.5 percentage point a year. In case of exceptional situations, the debt break rule may be suspended. These situations include state of emergency, war, increased security threats, exceptional expenditures due to a natural catastrophe, and severe economic recession lasting over 24 months and as amounting to a quarterly recession of 2 per cent of the GDP or yearly recession of 3 per cent of the GDP in the last quarter. When a self-governing unit’s debt exceeds 60 per cent of its average income in the preceding four years, the fiscal rule requires that unit to lower its debt by 5 per cent of its average income in the preceding four years. If it does not do so the state shall suspend that unit’s share of tax revenues by the same amount. A group of Senators submitted a petition to the Constitutional Court arguing that the reform required a constitutional act because it encroached on the constitutionally guaranteed rights of self-governing units to autonomous self-government.115 The municipalities have the right to be administered independently by their representative body116 and territorial self-governing units have the right to own property and manage their affairs on the basis of their own budget.117 The Court upheld the reform in February 2018.118 It held that fiscal responsibility rules including all public finances were required by EU law.119 A comparative analysis shows that the regulation of fiscal responsibility of self-governing units on constitutional level is rather exceptional in the EU Member States. The reform also passed the Court’s proportionality test, which is composed of criteria of appropriateness, necessity and proportionality in the narrow sense. Regarding the criterion of appropriateness, the Court, considering the level of regulatory burden and projected efficiency of proposed regulatory tools, found the aim of long-term stability of public finances legitimate. The Court stressed that the balanced budget rules were not unconditional obligations but represented only a tool for ensuring long-term stability of self-governing units’ finances. According to the Court, the aim was worthy of constitutional protection. Regarding the criterion of necessity, the Court found the solution chosen by the legislator from available options the least intrusive into the right of territorial self-governing units to own property and manage their affairs on the 114 Act No 23/2017 Coll, on Rules of Budgetary Responsibility; Act No 24/2017 Coll (amending several laws, including the laws regulating designation of tax revenues and regional and local self-governments budgets); Act No 25/2017 Coll, on Collection of Selected Data for the Purposes of Monitoring and Directing Public Finances. 115 Art 8 of the Constitution. 116 Art 100 (1) of the Constitution. 117 Art 101 (3) of the Constitution. 118 Pl ÚS 6/17 Fiscal Responsibility Rules [2018] No 99/2018 Coll. 119 Art 126 TFEU, The Protocol on the excessive deficit procedure, the Stability and Growth Pact, Regulation (EC) No 479/2009, and the Directive 2011/85/EU.

EMU Integration and the Czech Constitution  121 basis of their own budget, also in comparison to solutions in other Member States. Finally, the Court moved to proportionality test in the narrow sense. It found the harm on the constitutionally g­ uaranteed rights of territorial self-governing units (suspension of the right on share of tax revenues) proportionate to the aim of ensuring long-term stability of public finances.

D.  The Euro Plus Pact and Banking Union The Czech government appreciated that the Euro Plus pact was based on intergovernmental cooperation and not on the coordination method which would give the Commission a leading role. Nevertheless, the Czech Republic abstained from signing it. Content-wise, the majority of the suggested measures have already been in force in the Czech Republic or introduced as part of the government’s national reform programme. The government strongly disagreed with tax harmonisation, including the suggested financial transaction tax. Although the pact had softened these measures, the government was worried about future actions taken in this area. In particular, it was concerned that the pact might incite further plans on tax harmonisation and spread into other areas resulting in widening of EU powers.120 Within the Banking Union, the Czech Republic actively negotiated safeguards to maintain competences in relation to subsidiary companies of transnational bank groups. Seventy per cent of banks’ assets in the Czech Republic belong to subsidiaries of banks incorporated in the eurozone. The Czech Republic signed the Intergovernmental Agreement on the Single Resolution Mechanism (IGA).121 In 2016, the government decided to postpone the participation of the Czech Republic in the ‘close cooperation’ within the Single Supervisory Mechanism. A study of the Ministry of Finance, approved by the government, emphasised the high level of stability of the banking sector in the Czech Republic, compared to a number of other EU Member States, and warned against limitations of monetary policy tools the Czech central bank has at its disposal in case of crisis.122

V.  Resulting Relationship between EMU Related Law and National Law The Czech constitutional order is open to further monetary and fiscal integration within or outside the EU framework. As long as a treaty transfers the state’s competences to an international organisation or institution, the internal effect of the treaty (and implementing laws) shall be governed by the same principles that have been developed by the Constitutional Court for the relationship between Czech constitutional law and EU law. The Czech Republic is not a member of the eurozone, it does not participate in the EFSF, the ESM Treaty, the Euro Plus pact, and the Banking Union and is not bound by most of the provisions of the Six Pack and Two Pack legislation. It has acceded to the Fiscal Stability Treaty, but 120 Government of the Czech Republic, Stabilisation and future of the EMU: A Czech Republic contribution to the European debate, 24 April 2013, p 4. 121 The parliament gave its consent to ratification in October 2020. The ratification is likely to be concluded before the end of 2020. 122 Ministry of Finance of the Czech Republic, Aktualizace studie dopadu účasti či neúčasti České republiky v Bankovní unii (Updated study on the consequences of the Czech Republic participation and non-participation in the Banking Union), approved by the Government of the Czech Republic on 30 May 2016.

122  Tomáš Dumbrovský is not bound by its fiscal provisions. The 2017 reform eventually introduced fiscal responsibility rules through ordinary laws after previously failed attempts to introduce them at constitutional level. The reform was contested for its potentially unconstitutional intrusion into the rights of territorial self-governance but was upheld as proportionate by the Constitutional Court. A textual and systemic analysis of the Constitution shows a wide discretion of the legislator regarding economic and social reforms. The Constitutional Court developed a reasonableness test to review the government’s intrusion into economic and social rights. This test allows the Court to isolate its essential content. The essential content of these rights may be compromised in exceptional situations only. It is yet to be clarified to what extent the essential content of social rights belongs to the material core of the Constitution. The Court hinted that the constitutional guarantees of social rights are an expression of the nature of the state and are intertwined with human dignity. The material core of the Constitution creates an insurmountable barrier to actions of any institution of public power, Czech or European, and the Constitutional Court acknowledged its competence to review, as ultima ratio, acts of the EU institutions in case they are ultra vires. The Czech Republic assumed an obligation to accede to the third stage of the EMU and the arguments raised conditioning the obligation (such as rebus sic stantibus) are irrelevant. The current practice to abstain from the participation in the ERM II as a way to avoid the obligation to accede to the third stage of EMU, despite fulfilling the convergence criteria, must be assessed as illegal.

References C Calliess, ‘EUV Art. 50’ in C Calliess, M Ruffert (eds), EUV/AEUV, 4th edn (München, Beck, 2011) 468. Czech National Bank, Hospodářská a měnová politika v EU (Economic and Monetary Union in the EU), www.cnb.cz/cs/o_cnb/mezinarodni_vztahy/cr_eu_integrace/. JC Dammann, ‘The Right to Leave the Eurozone’ (2013) 48 Int’l LJ, 125. A Gerloch, ‘Povaha Smlouvy o stabilitě, koordinaci a správě v hospodářské a měnové unii sjednávána mezi zeměmi eurozóny z hlediska požadavků stanovených ústavním pořádkem České republiky na process její ratifikace’ (2012) Iuridica, 99. P Kantořík, ‘Ukončí zákon č. 428/2011 Sb. letitý spor o československé důchody?’ (2012) 22 (7) Právní rozhledy. J Komárek, ‘Slovenské důchody: druhá „válka soudů“ před Soudním dvorem EU’ (2011) 17 (10) Soudní rozhledy. J Kokott, M Pechstein, ‘Art. 53 EUV’ in R Streinz (ed), EUV/AEUV, 2nd edn (München, Beck, 2012) 324. F Křepelka, ‘Českoslovenští důchodci v pasti práva Evropské unie, Časopis pro právní vědu a praxi, 2011 Parlamentní Institut, Komentář k návrhu Smlouvy o stabilitě, koordinaci a správě v hospodářské a měnové unii’ (2012) 19(2) Analysis 3, 130. R Pomahač, ‘Soudní dvůr EU: Diskriminační podmínka pobytu v důchodovém pojištění’ (2012) 22(6) Právní rozhledy. Sekce pro evropské záležitosti Úřadu vlády ČR, Odbor koncepční a institucionální, Analýza Smlouvy o stabilitě, koordinaci a správě v hospodářské a měnové unii (2012). L Tichý, T Dumbrovský, ‘Czech Republic’ in S Griller et al (eds), National Constitutions and EU Integration (Oxford, Hart Publishing, 2020 forthcoming). ME Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (Leiden/Brill, Nijhoff 2009). R Zbíral, ‘Czech Constitutional Court, judgment of 31 January 2012, Pl. ÚS 5/12. – A Legal revolution or negligible episode? Court of Justice decision proclaimed ultra vires’ (2012) 4, Common Market Law Review, 1475. R Zbíral, ‘Pánbůh s eurem a zlé (Řecko) pryč: právní souvislosti opuštění eurozóny’ (2010) 16, Právní rozhledy, 580.

EMU Integration and the Czech Constitution  123

List of Relevant Legal Norms Constitutional Act No 1/1993 Coll, the Constitution of the Czech Republic Constitutional Act No 2/1993 Coll, the Charter of Fundamental Rights and Freedoms Constitutional Act No 395/2001 Coll (the Euro amendment of the Constitution) Act No 563/1991 Coll, on Accounting Act No 182/1993 Coll, Constitutional Court Act Act No 6/1993 Coll, Czech National Bank Act Act No 90/1995 Coll, Procedural Rules of the Chamber of Deputies Act No 107/1999 Coll, Procedural Rules of the Senate Act. No 218/2000 Coll, on Budgetary Rules Act No 23/2017 Coll, on Rules of Budgetary Responsibility Act No 24/2017 Coll (amending several laws, including the laws regulating designation of tax revenues and regional and local self-governments budgets) Act No 25/2017 Coll, on Collection of Selected Data for the Purposes of Monitoring and Directing Public Finances Government Directive on Dealing with EU Documents that form an annex to the Government Resolution No 665 from 6 August 2014 Ministry of Finance Bylaw no 410/2009 Coll Ministry of Finance Bylaw no 449/2009 Sb Ministry of Finance Regulation no 473/2013

124

5 Denmark ULLA NEERGAARD

Abstract: This chapter is devoted to an analysis of the constitutional foundations of Denmark, in particular in relation to the EMU. As Denmark has not joined the eurozone (by not having entered the third stage of the EMU), the main weight of the analysis is put on a presentation of the main characteristics of the Danish constitutional system and culture (section I), the constitutional foundations of a possible EMU membership and closely related instruments (section II), and the constitutional obstacles to potential EMU integration (section III). Moreover, constitutional rules and/or practice on implementing EMU-related law are briefly touched upon (section IV). In section V, certain conclusions as to the relationship between EMU-related law and Danish law are put forward. Generally, the analysis puts emphasis on explaining the particularities of the Danish situation due to its rather old-fashioned Constitution and the opt-outs, among which one specifically is concerned with the euro, which was a consequence of the initial so-called Danish ‘No’ in 1992 to the Treaty of Maastricht. Key words: constitutional culture, the euro opt-out, rule of law, ERM II, Ajos cases, referenda, dualism, eurosceptic, Edinburgh Agreement of 1992, Edinburgh Decision, EMU-related law, Law on Accession, supremacy, activism, third phase of the EMU, EMU protocol, Danish central bank, fixed exchange-rate policy, Euro Plus pact, European Semester, Banking Union, welfare state, social policy, Social Europe, social market economy, social rights.

I.  Main Characteristics of the National Constitutional System and Constitutional Culture The Danish constitutional system is mainly based on the Danish Constitution (Grundloven in Danish), which was adopted on 5 June 1849.1 It was most recently amended in 1953 (before that, it had been amended only a few times).2 It presently consists of 89 provisions.3 The majority of these provisions still subsist and are largely identical with how they were formulated in 1849. Because the majority of the drafting of the original provisions is unchanged and because they 1 It applies to all three members of the realm, ie Denmark, the Faroe Islands, and Greenland, cf Para 1. However only Denmark is a member of the EU; Greenland has the status of an overseas country or territory. 2 Jens Peter Christensen et al, Grundloven (Copenhagen, Djøf Publishing, 2015) 34. 3 Kristian Hvidt, ‘Grundlovens baggrund og historie’ in H Zahle (ed), Danmarks Riges Grundlov med kommentarer (Copenhagen, mforbundets Forlag, 1999) 1.

126  Ulla Neergaard reflect extremely old-fashioned formulations, the Danish Constitution is nowadays viewed by many as quite out of date and inadequate for the needs of a modern society. It has, thus, been said that it is probably mainly evolving through organic development within the existing provisions.4 The main reason that the Danish Constitution has not matured in the same way as ­constitutions in comparative countries is that it is quite difficult to amend it.5 In brief, according to Paragraph 88 it requires, adoption in Parliament … of the amendments in question, the calling of a general election, re-adoption of the same proposal in the newly elected Parliament, and confirmation by referendum with a majority of at least 40 per cent of all possible voters.6

The Grundloven constitutes the highest Danish source of law and has supremacy over other Danish sources of law. It does not contain a comprehensive catalogue of all fundamental rights that are now commonly included in more modern constitutions. It is mainly limited to civil and political rights. Thus, it does not truly reflect rights such as social rights, for example, to the extent that such rights may be found in the Charter of Fundamental Rights of the European Union (CFREU). It is uncertain whether unwritten rights can be acknowledged with an equivalent force to that of the Constitution.7 Since 1953 the Danish parliament (‘Folketinget’) has been unicameral. Denmark has no constitutional court equivalent to what may be seen in certain other countries. The Danish Supreme Court (‘Højesteret’ in Danish and hereinafter referred to as the ‘SCDK’), was established in 1661. It has the ultimate word concerning the interpretation of the Danish Constitution and prides itself on its judicial self-restraint. Accordingly, the SCDK is known for adopting a conservative, literal approach to the word of the law. This leaves very little room for any exercise of judicial discretion, combined with a reluctance to ensure effective protection of individual rights.8 Put another way, judge-made law is regarded as less acceptable than a more strict approach to interpretation. This tradition of the SCDK also implies that it is reluctant to set aside legislation as being unconstitutional (and after the Ajos case, which will be explained further below, the same approach might continue to be applied in relation to EU law, notwithstanding the longstanding principle of its primacy).9 Even though a degree of influence stemming from international courts 4 Markku Suksi, ‘Common Roots of Nordic Constitutional Law? Some Observations on Legal-Historical Development and Relations between Constitutional Systems of Five Nordic Countries’ in H Krunke et al (eds), The Nordic Constitutions. A Comparative and Contextual Study (Oxford, Hart Publishing, 2018) 20. 5 See eg Jens Peter Christensen, ‘§ 88’ in H Zahle (ed), Danmarks Riges Grundlov med kommentarer (Copenhagen, mforbundets Forlag, 1999) 509. 6 Lars Adam Rehof, ‘The Danes, Their Constitution and the International Community’ in B Dahl et al (eds), Danish Law in a European Perspective (Copenhagen, Forlaget Thomson, 2002) 65. 7 Jens Elo Rytter, Individets grundlæggende rettigheder (Copenhagen, Karnov Group, 2013) 41–42. 8 JE Rytter, Individets grundlæggende rettigheder (2013) 33. Also see Jonas Christoffersen, ‘Den grundlovgivende dommer’ in H Krunke et al (eds), Rettens magt – Rettens ret. Festskrift til Henning Koch (Copenhagen, Djøf Forlag, 2014) 69–80. That the SCDK is seen as not having a tradition for being very ‘‘activist’’ is, however, not without exceptions. For instance, its interpretation of the disputed Para 2(a)3 at issue in Ajos was – perhaps rather ironically – originally not based on the written law as such (see inter alia the SCDK judgment, 43), but rather on its own case law. If so, it could thus be asserted that the SCDK in the case was defending a self-created, case law based rule against what it saw as the CJEU’s activism, and that too could be regarded as being activist. Also, some would view the SCDK as a state-supportive institution, which seeks to protect the status quo. It is also seen to be an institution, in common with the lower courts, which to some degree is reluctant to give full effect to international obligations, and where it has been claimed in the literature, that there is a reluctance to refer cases to the CJEU. On these matters, see further below. 9 Jens Elo Rytter, Individets grundlæggende rettigheder (2013) 33. Also see Jens Peter Christensen, ‘Højesteret i dagens samfund’ in JP Christensen et al, Højesteret (Copenhagen, Jurist- og Økonomforbundet, 2015) 11, 29–34, where it is explained that this control does not directly have its legal basis in the Constitution, but follows from a constitutional tradition (sædvane in Danish).

Denmark  127 is discernible, these factors all imply that the Danish constitutional tradition is quite different from that of most other jurisdictions. Therefore, in Denmark, protection of an individual’s fundamental rights mainly derives from international sources of law, given effect by virtue of Danish legislation. Yet even in these cases, the Danish courts are nevertheless still perceived as being reluctant to give effect to such rights.10 Generally, Denmark is considered to respect the rule of law. To illustrate this, reference may be made to the president of the SCDK, Dahl (until 2014), who put it in the following way, Denmark is a rather small country but number one on the Rule of Law Index of the World Justice Project an Index assessing nations’ adherence to the rule of law in practice. In the European Union Denmark is number one on the list of Member States when looking at the confidence of the population in the courts and the judicial system. We have aimed at this position for centuries … It is a fundamental value stated in the preamble of the first law of the land from 1241 that with law shall the nation be built. Danish courts serve the law, we are not put on earth to attain more power, and we are not eagerly seeking opportunities to overrule legislation by stretching principles for their own sake. Excessive innovation and adventurism by judges is not something you will find in Denmark. Danish judges hold the view that creative judicial activism may endanger the rule of law.11

Although Denmark did not, as the United Kingdom, Poland and the Czech Republic did, secure ‘exemptions’ from the CFREU, it has recently, in connection with the Danish Chairmanship of the Committee of Ministers of the Council of Europe, demonstrated what by some could be seen as a certain hesitancy towards human rights. More specifically, in April 2018, the visible outcome of the Danish presidency became the adoption of the so-called Copenhagen Declaration.12 The role of the European Court of Human Rights had been the subject of strong debate. In particular, this debate had focused on the supposed dynamic interpretational style, which has become an object of common criticism.13 It is in this light that the declaration should be read, which, however, did not go as far as originally proposed by Denmark.14 It had, for a long time, been widely claimed that Danish courts over the years had not been too eager to refer cases to the Court of Justice of the European Union (CJEU) pursuant to Article 267 TFEU.15 More recently, this tendency might have changed and Danish courts are, at least according to Pagh, no longer seen as necessarily differing from other EU Member States in that regard.16 Whether scepticism among Danish courts in other respects might exist is not easy

10 Jens Elo Rytter, Individets grundlæggende rettigheder (2013). Also see more generally Jonas Christoffersen et al, ‘The End of Virtue? Denmark and the Internationalisation of Human Rights’ (2011) 80 (3) Nordic Journal of International Law, 257–77; and Børge Dahl et al, ‘Højesteret og folkeretten’ in J Herre et al (eds), Festskrift till Stefan Lindskog (Stockholm, Jure, 2018) 133, where it is stated that it is of significance that the SCDK continues to have a Danish approach to the task which internationalisation has brought along. Regarding the constitutional culture in Denmark, also see Lars Adam Rehof, ‘The Danes, Their Constitution and the International Community’ in B Dahl et al (eds), Danish Law in a European Perspective (Copenhagen, Forlaget Thomson, GadJura, 2002) 64. 11 Børge Dahl, Keynote Address, in U Neergaard et al (eds), Proceedings: Speeches from the XXVI FIDE Congress. The XXVI FIDE Congress in Copenhagen 2014. Congress Publications Vol 4 (Copenhagen, Djøf Publishing, 2014) 26–27. 12 Copenhagen Declaration, www.regeringen.dk/media/5101/koebenhavn-erklaering-13-4.pdf. 13 See further eg the Danish Institute for Human Rights, Danmarks formandskab for Europarådet, www.menneskeret. dk/emner/danmarks-formandskab-europaradet. 14 See, in particular, paras 29–31 of the Copenhagen Declaration, www.regeringen.dk/media/5101/koebenhavnerklaering-13-4.pdf. 15 See, for instance, Marlene Wind, ‘The Scandinavians: The Foot-dragging supporters of European Law’ in M Derlén et al (eds), The Court of Justice of the European Union: Multidisciplinary Perspectives (Oxford, Hart Publishing, 2018) 199. 16 See Peter Pagh, ‘Præjudicielle søgsmål: Danske domstoles præjudicielle forelæggelser for EU-Domstolen’ in BE Olsen et al (eds), EU-retten i Danmark (2018).

128  Ulla Neergaard to measure, but it is worth drawing attention to the recent Ajos cases.17 Here, the Danish Supreme Court in its combative Ajos judgment openly and controversially challenged the authority of the CJEU.18In the preliminary ruling by the CJEU preceding it, the CJEU had continued to develop the controversial general principle prohibiting age discrimination. This issue lies at the heart of the dispute and it seems very likely that the Danish Supreme Court felt that the CJEU had been too activist when it originally ‘launched’ this general principle. Indeed, the reasoning of the Danish Supreme Court gives the impression that the CJEU had itself created it out of nowhere. In turn, this appeared to be an implicit reference to the widely criticised interpretative approach of the CJEU, resulting in a far-reaching willingness to espouse judicial activism. But in acting as it did, it seems ironic that the Danish Supreme Court itself showed that it too had an activist streak. As a consequence, currently, parts of EU law are not fully incorporated into Danish law.19 Naturally, there is a considerable importance in understanding how a country’s highest court behaves in relation to EU law and the CJEU, and the signal given here seems rather significant. It may, thus, be viewed as the culmination of an implied development – and at times expressly articulated restiveness – among constitutional and supreme courts across Europe challenging the authority of the CJEU. Most dramatically, it seems that the Ajos judgment may have the consequence that general principles other than that of age discrimination and in particular relevant Charter provisions do not have full direct effect in Denmark.

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments The Danish Constitution does not contain any provisions referring explicitly to the EU, and thereby also none referring to the EMU. However, two provisions are of importance: Paragraphs 19 and 20. The former concerns treaty-making powers and is of a rather complex nature.20 For the purposes of this chapter, it suffices to say that the provision is often regarded as implying that a dualist system is in principle in force in Denmark. Paragraph 20, which is equally complex, concerns the delegation of powers to international organisations. Its precise text (in translation) is: 1.

Powers vested in the authorities of the Realm under this Constitutional Act may, by statute to a certain specified extent, be delegated to international authorities set up by mutual agreement with other states for the promotion of international rules of law and cooperation.

17 See for the Danish SCDK judgment UfR 2017.824H (Case no 15/2014, DI, acting on behalf of Ajos A/S v Estate of A). A translation from Danish into English is available at www.supremecourt.dk/supremecourt/nyheder/pressemeddelelser/Pages/TherelationshipbetweenEUlawandDanishlawinacaseconcerningasalariedemployee.aspx. The judgment was rendered on 6 December 2016. As for the CJEU judgment, see Case C-441/14 Ajos [2016] EU:C:2016:278. The judgment was rendered on 19 April 2016. 18 See for an in-depth analysis: Ulla Neergaard et al, ‘Activist Infighting among Courts and Breakdown of Mutual Trust? The Danish Supreme Court, the CJEU and the Ajos Case’ (2017) 36 Yearbook of European Law, 275–313. 19 The SCDK had, until 6 December 2016, followed a pragmatic and careful approach towards the CJEU and EU law, and it appears startling that it has now chosen not to comply with a ruling of the CJEU, thus undermining a cornerstone of the EU acquis by failing to apply the principle of the supremacy of EU law. 20 Paragraph 19 of the Constitution provides (in translation): ‘(1) The King shall act on behalf of the Realm in international affairs, but, except with the consent of the Folketing, the King shall not undertake any act whereby the territory of the Realm shall be increased or reduced, nor shall he enter into any obligation the fulfilment of which requires the concurrence of the Folketing or which is otherwise of major importance; nor shall the King, except with the consent of the Folketing, denounce any international treaty entered into with the consent of the Folketing. (2) Except for purposes of defense against an armed attack upon the Realm or Danish forces, the King shall not use military force against any

Denmark  129 2.

For the enactment of a Bill dealing with the above, a majority of five sixths of the Members of the Folketing shall be required. If this majority is not obtained, whereas the majority required for the passing of ordinary Bills is obtained, and if the Government maintains it, the Bill shall be submitted to the electorate for approval or rejection in accordance with the rules for referenda laid down in Section 42.21

This provision was inserted into the Constitution in 1953 to prepare for future international arrangements. Accordingly, it constituted the legal basis for Danish membership of the European Communities from 1 January 1973. It implies that powers vested in the Danish authorities under the Constitution may ‘to a certain specified extent’ be delegated to international authorities set up by mutual agreement for the promotion of international rules of law and cooperation.22 It was, thus, stipulated in the language of dualism often prevailing at that time, and it is one of the factors which today complicates the Danish state’s membership of the EU.23 The SCDK has rendered two judgments of importance to the understanding of how Paragraph 20 of the Constitution should be interpreted in relation to EU membership. The first concerns the Maastricht Treaty and the other the Lisbon Treaty.24 In both instances, the SCDK ruled that the Danish courts cannot be deprived of their right to adjudicate questions on whether EU law instruments overstep the boundaries for the transfer of sovereignty that has been ceded by the Kingdom of Denmark.25 If the boundaries are exceeded, the consequence could be inapplicability of EU law.26 Furthermore, the SCDK established that, even when the EU adopts rules within its delegated competences, the Danish Constitution ranks above EU law.27 The Danish Law on Accession,28 which addresses the accession to the European Community and the accession to subsequent EU treaties resulting in changes to EU law, should be understood foreign state without the consent of the Folketing. Any measure which the King may take in pursuance of this provision shall forthwith be submitted to the Folketing. If the Folketing is not in session it shall be convened immediately. (3) The Folketing shall appoint from among its Members a Foreign Policy Committee, which the Government shall consult before making any decision of major importance to foreign policy. Rules applying to the Foreign Policy Committee shall be laid down by statute.’ 21 Taken from the translation into English of the SCDK’s Lisbon Case (UfR 2013.1451H). See further below about that case. For a translation of the entire Constitution, see www.legislationline.org/documents/section/constitutions. 22 Ole Due, ‘Danish Law in a European Context’ in B Dahl et al (eds), Danish Law in a European Perspective (2002) 13–14. For an account of the provision, see Jens Hartig Danielsen, ‘Delegation of Sovereignty – Article 20 of the Danish Constitution: The story of a successful operation but a dead patient?’ in H Koch et al (eds), Europe. The New Legal Realism (Copenhagen, Djøf Publishing, 2010) 135–52. 23 Henrik Zahle, EU og den danske grundlov (Copenhagen, Chr. Ejlers Forlag, 1998) 105. 24 See UfR 1998.800H and UfR 2013.1451H respectively. For recent commentaries, see eg Peter Biering et al, ‘To Hold a Referendum or Not?’ (2015) 21 (1) European Public Law 169–91; Jens Hartig Danielsen, ‘One of Many National Constraints on European Integration: Section 20 of the Danish Constitution’ (2010) 16 European Public Law 181–92; Helle Krunke, ‘The Danish Lisbon Judgment – Danish Supreme Court, Case 199/2012, Judgment of 20 February 2013’ (2014) 10(3) European Constitutional Law Review 542–70; Per Lachmann, ‘Grundlovens § 20 og traktater, der ændrer EU’s i­ nstitutione’ (2012) Juristen 259–73; and Henrik Palmer Olsen, ‘The Danish Supreme Court’s decision on the constitutionality of Denmark’s ratification of the Lisbon Treaty’ (2013) CML Rev 1489–1504. 25 Jens Peter Christensen, ‘The Supreme Court in Today’s Society’ in J P Christensen et al, The Supreme Court of Denmark (Copenhagen, Djøf Publishing, 2015) 11–53, 51. More precisely, in both judgments, the SCDK could be said to have prepared for the line taken in its Ajos judgment. This may be understood from the following statement in the Lisbon judgment at p 15 of the English translation: ‘If an act or a judicial decision which has a specific and real impact on Danish citizens etc. raises doubts as to whether it is based on an application of the Treaties which lies beyond the surrender of sovereignty according to the Accession Act, as amended, this may be made subject to a judicial review, as stated in para. 9.6 of the Maastricht judgment. The same applies if EU acts are adopted – or if the Court of Justice delivers judgments – based on such application of the Treaties with reference to the Charter of Fundamental Rights.’ 26 Ibid. 27 Ibid. 52. 28 The proposal for the act was according to Jens Hartig Danielsen, Suverænitetsafgivelse (Copenhagen, Jurist- og Økonomforbundet, 1999) 124–25, presented to the Danish Parliament on 15 march 1972 and with reference to Paragraph 20 of the Constitution. The proposal was adopted with 141 votes in favour and 34 against (ibid). As a majority of

130  Ulla Neergaard in light of the aforementioned Paragraph 20 of the Constitution.29 Paragraph 2 of the Law on Accession provides that the powers conferred on the authorities of the Kingdom by the Constitution may, within the limits specified in the treaties, etc.,30 referred to in Paragraph 4 of that Act,31 be exercised by the EU’s institutions. In Paragraph 3, it is stipulated that: 1. 2.

Those provisions referred to in Paragraph 4 are put into force in Denmark in so far as they are directly applicable in Denmark under EU law. The same applies in respect of those legal instruments which are adopted by the European [Union’s] institutions before Denmark’s accession to the European [Union] and published in the Official Journal of the European [Union].32

Paragraph 4 of the Law on Accession then contains a long list of those treaties (and other acts) to which the provisions of Paragraph 2 and Paragraph 3 apply.33 Thus Paragraphs 2 and 4 provide for a delegation of powers to the EEC/EU and Paragraph 3 ensure that the Treaties and secondary EU law adopted before accession may have direct effect in Denmark to the extent they have this effect under EU law. There is now a specific reference to the euro opt-out.34

five-sixths of the Members of the Folketing as required was not obtained, the act was therefore submitted to the electorate for approval or rejection in accordance with the rules for referenda laid down in Paragraph 42 of the Constitution (it had under all circumstances been the decision of the Parliament to request the government to have a referendum no matter the result of the vote) (ibid). The referendum was held on 2 October 1972, where 63.3% were in favour of accession and 36.7% against it (ibid). 29 See for the text itself of the act www.retsinformation.dk/forms/r0710.aspx?id=72060. See further about the Law on Accession, Jens Hartig Danielsen, Suverænitetsafgivelse (1999) in particular 124f and Helle Krunke, ‘Impact of the EU/EEA on the Nordic Constitutional Systems’ in H Krunke et al (eds), The Nordic Constitutions. A Comparative and Contextual Study (2018) 169f. 30 The original wording of the provision is the following: ‘§ 4. Bestemmelserne i § 2 og § 3 vedrører følgende traktater m.v.: 1. Traktat af 18. april 1951 om oprettelse af Det europæiske Kul- og Stålfællesskab, som ændret ved Traktat af 27. oktober 1956, vedtagelse af Det særlige Ministerråd og Den høje Myndighed af 16. maj 1960 og afgørelse af Rådet af 6. december 1962, 2. Traktat af 25. marts 1957 om oprettelse af Det europæiske økonomiske Fællesskab, 3. Traktat af 25. marts 1957 om oprettelse af Det europæiske Atomenergifællesskab, 4. Konvention af 25. marts 1957 vedrørende fælles institutioner for De europæiske Fællesskaber, 5. Konvention af 13. november 1962, som ændrer traktaten om oprettelse af Det europæiske økonomiske Fællesskab med henblik på at gøre den særlige associeringsordning, der er omhandlet i fjerde del af denne traktat, anvendelig på de nederlandske Antiller, 6. Traktat af 8. april 1965 om oprettelse af et fælles Råd og en fælles Kommission for De europæiske Fællesskaber, 7. Traktat af 22. april 1970 om ændring af visse budgetbestemmelser i traktaterne om oprettelse af De europæiske Fællesskaber og i traktaten om oprettelse af et fælles Råd og en fælles Kommission for De europæiske Fællesskaber, 8. Traktat af 22. januar 1972 vedrørende kongeriget Danmarks, Irlands, kongeriget Norges og Det forenede kongerige Storbritannien og Nordirlands tiltrædelse af Det europæiske økonomiske Fællesskab og af Det europæiske Atomenergifællesskab, 9. Afgørelse truffet af Rådet for De europæiske Fællesskaber den 22. januar 1972 vedrørende kongeriget Danmarks, Irlands, kongeriget Norges og Det forenede kongerige Storbritannien og Nordirlands tiltrædelse af Det europæiske Kul- og Stålfællesskab, med tilhørende bilag, protokoller m. v.’ 31 ie Law No 447 of 11 October 1972, as amended, Law on Denmark’s accession to the European Union. 32 Here cited from the SCDK judgment, 19. Also see Jens Hartig Danielsen, Suverænitetsafgivelse (1999) 323f. 33 For the list in English, see the SCDK judgment, 22–23 or the Danish wording above in n 30. As a consequence, the Law on Accession is changed every time the Treaties are changed to update the list in Para 4. 34 According to the most recent amendment of the law, the wording of Para 4, no 14 is now: ‘Lissabontraktaten om ændring af traktaten om Den Europæiske Union og traktaten om oprettelse af Det Europæiske Fællesskab og visse tilknyttede akter med tilhørende protokoller og erklæringer med undtagelse af a) (det retlige forbehold) traktatens artikel 2, nr. 63-68, der ændrer bestemmelserne i traktaten om Den Europæiske Unions funktionsmåde tredje del, afsnit IV vedrørende et område med frihed, sikkerhed og retfærdighed, for så vidt disse bestemmelser ikke angår udpegning af de tredjelande, hvis statsborgere skal være i besiddelse af visum ved passage af EU-landenes ydre grænser, eller foranstaltninger vedrørende en ensartet udformning af visa, samt traktatens artikel 2, nr. 29, der indføjer en ny artikel 16 B i traktaten om Den Europæiske Unions funktionsmåde, for så vidt denne bestemmelse angår medlemslandenes behandling af personoplysninger under udøvelsen af aktiviteter, der er omfattet af traktaten om Den Europæiske Unions funktionsmådes tredje del, afsnit IV, kapitel 4 og 5, og b) (euro-forbeholdet) de bestemmelser, der er angivet i artikel 116a, stk. 2, i traktaten om Den Europæiske Unions funktionsmåde, og i artikel 42, stk. 1, i protokol om statutten for Det Europæiske System af Centralbanker og Den Europæiske Centralbank.’ See wwww.retsinformation.dk/Forms/R0710.aspx?id=116752.

Denmark  131

III.  Constitutional Obstacles to EMU Integration In more than one respect, Denmark is situated in the margins of the EU – not just geographically. Paradoxically, it is a country, which now belongs to the group of oldest-established members of the EU, as it became a full member back in 1973 (together with Ireland and the United Kingdom). Perhaps it ought by now to have become accustomed to EU membership, but nevertheless it may be considered to have one of the most puzzling stances towards it. In fact, after the United Kingdom’s Brexit referendum and consequent exit from the EU, Denmark will be the country with the most explicit standalone arrangements. Thus, rather unsurprisingly, the country has, for instance, been referred to as ‘an awkward European partner’,35 ‘a reluctant European’,36 ‘an outlier when it comes to European integration’,37 and ‘a state suffering from an “integration dilemma”’.38 It has also (together with the other Scandinavian countries) been referred to as only a ‘soft euro-sceptic’,39 as well ‘a smart state handling a differentiated integration dilemma’.40 At the same time, its relationship to the EU has been characterised by what looks like a paradox.41 Thus, the country with regard to its relations to the EU somehow constitutes a bit of a conundrum as a country having a problematic or differentiated relationship to the EU, yet combined with more ‘comforting’ traits of behaviour.42 If a formal context for Denmark’s independent behaviour were needed, it is mainly a consequence of the initial so-called Danish ‘No’ in 1992 to the Treaty of Maastricht (with only 50.7 per cent in favour thereof subsequently).43 This led to the Edinburgh Agreement of 1992, the purpose of which was to assist in approval in a second referendum.44 Thus, four opt-outs were stipulated in the so-called Edinburgh Decision.45 Accordingly, in a new referendum, which took place in 1993, the Danes accepted the Treaty of Maastricht (with 56.7 per cent in favour thereof), which was subsequently ratified. These opt-outs have in other words now been in force for a quarter of a century and their practical

35 Anders Wivel, ‘As Akward as They Need to Be: Denmark’s Pragmatic Activist Approach to Europe’ in M McCallion et al (eds), Nordic States and European Integration. Awkward Partners in the North (London, Palgrave Macmillan, 2018) 14. 36 Lee Miles et al, ‘Introducing Denmark and the European Union’ in L Miles et al (eds), Denmark and the European Union (London, Routledge, 2014) 1. 37 Ibid 228. 38 Ibid. 39 Julie Hassing Nielsen, ‘The pragmatic Euroscepticism of Scandinavia’ in B Leruth et al (eds), The Routledge Handbook of Euroscepticism (London, Routledge, 2018) 231. 40 Lee Miles et al, ‘Introducing Denmark and the European Union’, 228. 41 Martin Marcussen, ‘Denmark and the Euro opt-out’ in L Miles et al (eds), Denmark and the European Union (2014) 74. 42 According to Rebecca Adler-Nissen, Opting Out of the European Union. Diplomacy, Sovereignty and European Integration (Cambridge, Cambridge University Press, 2014) 2, ‘Differentiation is the collective term for rejecting common rules and moving towards a form of co-operation where various member states have different rights and obligations within specific policy areas.’ 43 See further on this referendum and more generally about the Danish relation to the EU, Morten Kelstrup, ‘Denmark’s relation to the European Union: a history of dualism and pragmatism’ in L Miles et al (eds), Denmark and the European Union (2014) 14–29. Also see Anders Wivel, ‘As Akward as They Need to Be: Denmark’s Pragmatic Activitist Approach to Europe’ in M McCallion et al (eds), Nordic States and European Integration. Awkward Partners in the North? (2018) 13f. 44 Included in Part B, ‘Denmark and the Treaty on European Union’, of the Conclusions of the Presidency, European Council in Edinburgh, 11–12 December 1992, www.europarl.europa.eu/summits/edinburgh/default_en.htm. 45 More precisely, the agreement consists of the following set of arrangements: a) a decision concerning certain p ­ roblems raised by Denmark on the Treaty on European Union (Annex 1); b) two declarations from the European Council (Annex 2; one on social policy, consumers, environment and distribution of income and one on defence); c) two unilateral declarations from Denmark (Annex 3); and d) a final declaration. In the latter, it is stated that as far as Denmark is concerned the Edinburgh Decision is compatible with the Maastricht Treaty and does not call its objectives into question.

132  Ulla Neergaard importance has steadily increased over the years. On the one hand, they have, for example, been seen as implying that Denmark has less influence in important matters.46 On the other hand, they have, for instance, been interpreted as bulwarks against European integration and symbolising ‘the preservation of national sovereignty – emphasising an image of the state with full political and legal authority over people, territory and currency – which makes them seem almost sacrosanct’.47 The Edinburgh Decision constitutes an international law decision and has the status of a legally binding instrument, complementing primary EU law.48 It is not in itself subject to the jurisdiction of the CJEU.49 Pursuant to Section E, No 1, of the decision, it took effect on the date of entry into force of the Treaty on European Union and without any prior ratification in the individual Member States.50 Therefore, it was only in Denmark that the Decision became an element in the Danish ratification of the Treaty of Maastricht.51 The Decision can be said to have been successively upheld, when Treaty amendments have taken place.52 Thus, the Decision is considered not to be in conflict with the Treaty of Lisbon, but rather complementing it.53 Protocol No 22 of the Treaty of Lisbon even makes a reference to the Decision.54 Here, it is also stipulated that Denmark will not prevent the other Member States from further developing their cooperation with respect to measures not binding on Denmark. Since the Treaty of Amsterdam, due to the adoption of that Protocol, the opt-outs may be viewed as having moved from only having the status of international law to also having the status of EU law, and, thus, subject to interpretation not only by Denmark but also by the EU as such.55 On that basis, the CJEU may also now be considered competent in this regard. The term ‘opt’ derives from the Latin term optare and means to select or to choose.56 Importantly and as it has been put forward by Adler-Nissen: [a]t first glance, a national opt-out is simply a legal protocol attached to a treaty, which usually implies that a member state will not formally participate in the decision-making process and will not adopt or implement EU legislation in the area covered by the opt-out. In practice, however, Danish and British officials participate in meetings where new legislation covered by their protocols is discussed, only ­without always casting their formal vote.57 46 See eg Dansk Institut for Internationale Studier, De danske forbehold overfor den europæiske union. Udviklingen siden 2000 (2008) 22, www.static-curis.ku.dk/portal/files/45209345/De_danske_forbehold_Udviklingen_siden_2000.pdf. 47 Rebecca Adler-Nissen, Opting Out of the European Union. Diplomacy, Sovereignty and European Integration (2014) 8. 48 Udenrigsministeriet, Notat til Udenrigspolitisk Nævn om Edinburgh-aftalen (2008). 49 Dansk Institut for Internationale Studier, De danske forbehold overfor den europæiske union. Udviklingen siden 2000 (2008) 37, www.static-curis.ku.dk/portal/files/45209345/De_danske_forbehold_Udviklingen_siden_2000.pdf. 50 Udenrigsministeriet, Notat til Udenrigspolitisk Nævn om Edinburgh-aftalen (2008). 51 See Christian Thorning, ‘Forsvarsforbeholdet’ in BE Olsen et al (eds), EU-retten i Danmark (Copenhagen, Juristog Økonomforbundet, 2018). It is here also explained that the second referendum accordingly concerned a legislative proposal to accede both the Edinburgh Decision and the Treaty of Maastricht, namely L177/1992-93, adopted as Act No 355 of 9 June 1993, and that the Edinburgh Decision and the associated act of amendment to the Act of Accession added to that Act’s § 4, which lists those treaties which constitute the foundation of Danish EU membership (ie Act No 289 of 28 April 1993). 52 See eg Folketinget, Lissabontraktaten sammenskrevet med det gældende traktatgrundlag (2018), www.eu.dk/~/media/ files/eu/ld_euo_lissabon_16.ashx?la=da. 53 Christian Thorning, ‘Forsvarsforbeholdet’ in B E Olsen et al, EU-retten i Danmark (2018). 54 Also see Protocols 16 and 17 as of relevance to the Danish situation, and’ Politisk aftale af 2008-02-21 mellem Regeringen (Venstre og Det Konservative Folkeparti), Socialdemokraterne, Socialistisk Folkeparti, Det Radikale Venstre og Ny Alliance om dansk europapolitik i en globaliseret verden’, which according to EU-Karnov is printed in FT 2007-08, 2. samling, ad L 53, in’ Europaudvalgets betænkning af 2008-03-14’. 55 Christian Thorning, ‘Forsvarsforbeholdet’ in BE Olsen et al, EU-retten i Danmark (2018). 56 See eg Webster’s Encyclopedic Unabridged Dictionary of the English Language. 57 Rebecca Adler-Nissen, Opting Out of the European Union. Diplomacy, Sovereignty and European Integration (2014) 15.

Denmark  133 The Danish opt-outs may be viewed as not only having a function vis-á-vis the EU – in simplified terms – in the shape of a right not to participate in the specified areas of law, but by nature presumably also an obligation vis-á-vis the Danish electorate, as they may also be interpreted as a promise to respect this approach, namely, that the areas covered by the opt-outs are protected from action.58 According to Section E, No 2, Denmark can give up its opt-outs at any time. More precisely, according to Section E, No 2, Denmark may at any time, in accordance with its constitutional requirements, inform the other EU Member States that it no longer wishes to avail itself of all or part of this decision. In that event, Denmark will apply in full all relevant measures then in force taken within the EU framework. However, giving up one or all of the Danish opt-outs is considered to require a referendum.59 That said, it is considered unlikely that the Danish electorate at present would vote for such a change. By now, mainly in light of that, changing Danish governments seem to have become more hesitant regarding such referenda on EU matters.60 The four Danish treaty-based opt-outs more specifically concern ‘Citizenship’, ‘Economic and Monetary Union’, ‘Defence Policy’ and ‘Justice and Home Affairs’ (the areas of freedom, security and justice).61 In general terms, they imply that in the areas of law at stake, Denmark cannot participate. The opt-out regarding the euro gives Denmark the right to decide if, and when, to join the euro. In other words, it implies that Denmark is never obliged to enter the third phase of EMU. The original reason behind the opt-out is closely related to a fear of a federal Europe with a loss of Danish national identity.62 More specifically, in Section B of the Edinburgh Decision the following is stated: 1.

2.

The Protocol on certain provisions relating to Denmark attached to the Treaty establishing the European Community gives Denmark the right to notify the Council of the European Communities of its position concerning participation in the third stage of Economic and Monetary Union. Denmark has given notification that it will not participate in the third stage. This notification will take effect upon the coming into effect of this decision. As a consequence, Denmark will not participate in the single currency, will not be bound by the rules concerning economic policy which apply only to the Member States participating in the third stage of Economic and Monetary Union, and will retain its existing powers in the field of monetary policy according to its national laws and regulations, including powers of the National Bank of Denmark in the field of monetary policy.

58 Also see the not legally binding ‘Danish Compromise’, 27 October 1992, www.retsforbehold.eu.dk/da/folkeafstemning/ lovstof/eu/nationale_kompromis. 59 See on the legal details in that regard, Christian Thorning, ‘Forsvarsforbeholdet’ in BE Olsen et al, EU-retten i Danmark (2018). 60 Three out of eight times referenda ended with a ‘No’ vote and generally it was a rather tight vote in the cases leading to a ‘Yes’. The figures are the following: 1972: Treaty of Rome (accession) => YES (63.3 vs 36.7); 1986: European Single Act => YES (56.2 vs 43.8); 1992: Treaty of Maastricht => NO (49.3 vs 50.7); 1992: Treaty of Maastricht and the Edinburgh Agreement => YES (56.3 vs 43.3); 1998: Treaty of Amsterdam => YES (55.1 vs 44.9); 2000: The euro (one of the optouts) => NO (46.8 vs 53.2); 2014:Patent Court => YES (62.5 vs 37.5); 2015: Change of the opt-out regarding police and judicial collaboration => NO (46.9 vs 53.1). Regarding the legal details as to the latter referendum, see Peter Pagh, ‘Ophævelsen af det danske retsforbehold og reservationen for asyl- og indvandringsområdet’ (2015) 42 Ugeskrift for Retsvæsen 358–65. 61 According to Tænketanken Europa, Forbeholdslandet Danmark. De mange aktiveringer af forbeholdene – og det voksende tab af suverænitet, Report (2017), 14, www.thinkeuropa.dk/sites/default/files/notat.forbehold.2017. endelig0206_1.pdf. A majority would vote ‘No’ to give up all four opt-outs. 62 See eg Dansk Institut for Internationale Studier, De danske forbehold overfor den europæiske union. Udviklingen siden 2000 (2008) 35-36, www.static-curis.ku.dk/portal/files/45209345/De_danske_forbehold_Udviklingen_siden_2000.pdf.

134  Ulla Neergaard 3.

Denmark will participate fully in the second stage of Economic and Monetary Union and will continue to participate in exchange-rate cooperation within the European Monetary System (EMS).63

In addition, reference may be made to Protocol No 16, the so-called special Danish EMU protocol whose origin lies in the Treaty of Maastricht,64 where the following is stated in the Treaty of Lisbon: The high contracting parties, taking into account that the Danish Constitution contains provisions which may imply a referendum in Denmark prior to Denmark renouncing its exemption, given that, on 3 November 1993, the Danish Government notified the Council of its intention not to participate in the third stage of economic and monetary union, have agreed upon the following provisions, which shall be annexed to the Treaty on European Union and to the Treaty on the Functioning of the European Union: 1.

2. 3.

In view of the notice given to the Council by the Danish Government on 3 November 1993, Denmark shall have an exemption. The effect of the exemption shall be that all Articles and provisions of the Treaties and the Statute of the ESCB referring to a derogation shall be applicable to Denmark. As for the abrogation of the exemption, the procedure referred to in Article 140 shall only be initiated at the request of Denmark. In the event of abrogation of the exemption status, the provisions of this Protocol shall cease to apply.65

Any change with regard to this opt-out, as well as the others, will, as mentioned above, require a referendum.66 In fact, in 2000 the Danish electorate – despite the fact that only six months earlier a fairly large proportion of the population had been in favour of voting in favour – voted against joining the euro in a referendum (rejection by 53.2 per cent of voters).67 Public support in favour of the euro itself is still rather weak, which also supports the view that it would not be realistic to expect a new referendum to be launched in the near future.68 Therefore, it can reasonably be predicted that the Danish euro opt-out will stand for many years to come. The Danish central bank is ‘Danmarks Nationalbank’. The legal basis for it is an act, ‘Lov om Danmarks Nationalbank’, which dates back to 1936.69 According to Section 1, the purpose of the bank is to maintain a safe and secure currency system and facilitate and regulate the traffic

63 Denmark and the Treaty on European Union, [1992] OJ C348. 64 ie in Protocol No 12 and thereby originating from before the 1992 referendum. 65 A Danish government interpretation of this provision may be found here: Ministry of Justice, Notat om visse forfatningsretlige spørgsmål i forbindelse med Danmarks ratifikation af traktaten om stabilitet, samordning og styring i Den Økonomiske og Monetære Union (den såkaldte finanspagt) (2012) 10, www.ft.dk/samling/20111/almdel/euu/ bilag/304/1086616/index.htm. 66 See the account of the relevant literature and the Ministry of Justice’s assessments in that regard in the memorandum: Ministry of Justice, Notat om hvorvidt dansk deltagelse i det styrkede banksamarbejde forudsætter anvendelse af proceduren i grundlovens § 20 (2015), www.justitsministeriet.dk/sites/default/files/media/Arbejdsomraader/Vaaben/Notat%20 om%20visse%20statsretlige%20sp%C3%B8rgsm%C3%A5l.pdf. 67 The referendum took place to enable Denmark to participate in the common currency, the euro, on the basis of the provisions of the EC Treaty about the third phase of EMU, which it otherwise would not have been able to due to the euro opt-out (see inter alia Para 1 of ‘Lov om Danmarks deltagelse i den fælles valuta’ (adopted on 6 December 2000), where it is stated that: ‘Danmark kan deltage i den fælles valuta, euroen, på grundlag af bestemmelserne i Traktaten om Det Europæiske Fællesskab om Den Økonomiske og Monetære Unions tredje fase’, www.retsinformation.dk/forms/R0710. aspx?id=93871&exp=1. It was timewise related to the fact that the third phase of the EMU was initiated on 1 January 1999 and on 1 January 2002 the euro would become the currency in 12 Member States as new notes and coins were then introduced. 68 See eg Tænketanken Europa, Forbeholdslandet Danmark. De mange aktiveringer af forbeholdene – og det voksende tab af suverænitet, Report (2017) 15, www.thinkeuropa.dk/sites/default/files/notat.forbehold.2017.endelig0206_1.pdf. 69 www.retsinformation.dk/Forms/R0710.aspx?id=41648.

Denmark  135 in money and the extension of credit.70 The bank itself reads the act as prescribing three main ­objectives, namely: 1) stable prices;71 2) secure payments;72 and 3) stability of the financial system.73 Pursuant to Section 2(3) of ‘Bekendtgørelse af lov om valutaforhold m.v.’ (Consolidated Act on Foreign Exchange, etc) no 279 of 11 April 1988, ‘Guidelines for the foreign-exchange policy to be conducted while the Act is in force shall be laid down after negotiation between Danmarks Nationalbank and the Royal Bank Commissioner’.74 This means that although the bank is responsible for monetary policy – independently from the Danish government – the exchange-rate policy has to be determined by the Danish government, albeit in consultation with the bank. Somehow in spite of the euro opt-out, it is noteworthy that Denmark follows a fixed exchangerate policy vis-à-vis the euro, which was agreed upon nearly 20 years ago.75 More specifically, the decision was made at an informal meeting of the Ecofin Council on 25–27 September 1998 in Vienna between the ministers for economy and finance and the central bank governors of the EU Member States.76 A narrow fluctuation band of +/−2.25 per cent around the central rate in the European Exchange Rate Mechanism II (hereafter ERM II) was the decision at that time.77 In these circumstances, Denmark keeps the rate of exchange within a much narrower range than required by the system itself (a currency is allowed to float within a quite wide range of +/−15  per  cent). In practice, since the fixed exchange-rate policy ensures that fluctuations in the krone rate against the euro are kept at such a very modest level and the krone will match the euro’s fluctuations vis-à-vis other currencies.78 Even today, the ERM II still constitutes the formal framework for the Danish fixed exchange-rate policy. The Danish central bank’s assessment is that this policy has provided an anchor for low and stable inflation expectations.79 Thus, rather remarkably, since Denmark joined ERM II back in 1999 when the euro was introduced, its participation has been long-lasting and compliant. Perhaps even more remarkably, the country 70 The translation is taken from Danmarks Nationalbank, Monetary Policy in Denmark (2009) www.nationalbanken. dk/en/publications/Documents/2009/11/mon-pol_uk_09_web.pdf, 1 and 9. The formulation in Danish is, ‘Danmarks Nationalbank, der ved denne Lovs Ikrafttræden, jfr. § 33, overtager Nationalbanken i Kjøbenhavn, har som Landets Centralbank til Opgave i Overensstemmelse med denne Lov og de i Henhold til Loven udfærdigede Forskrifter at ­opretholde et sikkert Pengevæsen her i Landet samt at lette og regulere Pengeomsætning og Kreditgivning.’ 71 Danmarks Nationalbank, Monetary Policy in Denmark (2009), www.nationalbanken.dk/en/publications/ Documents/2009/11/mon-pol_uk_09_web.pdf, 9. This includes, ‘Danmarks Nationalbank helps to ensure stable prices, i.e. low inflation. This is done by using monetary policy to maintain a fixed exchange rate of the krone against the euro.’ 72 Ibid. It includes ‘Danmarks Nationalbank helps to ensure that cash and electronic payments can be settled in a secure manner. This is done by issuing banknotes and coins and by ensuring that banks can settle payments among themselves.’ 73 Ibid. It includes ‘Danmarks Nationalbank helps to ensure the stability of the financial system. This is done by monitoring financial stability and payment systems, producing financial statistics and managing government debt.’ 74 The wording is Danish is, ‘Stk. 3. Retningslinjerne for den valutapolitik, der skal føres i lovens gyldighedstid, fastsættes efter forhandling mellem Danmarks Nationalbank og den kongelige bankkommissær.’ The full text of the consolidated act is available at www.retsinformation.dk/Forms/R0710.aspx?id=66146. 75 Danmarks Nationalbank, Monetary Policy in Denmark (2009). Importantly, again before joining the ERM II, Denmark had conducted a fixed exchange-rate policy. This policy was initiated back in the early 1980s, initially against the D-mark and then against the euro. See further Danmarks Nationalbank, Foreign-Exchange-Rate Policy and ERM 2 (2018), www.nationalbanken.dk/en/monetarypolicy/fixed_exchange_rate_and_ERM2/Pages/default.aspx. 76 Danmarks Nationalbank, Monetary Policy in Denmark (2009) 9. 77 Danmarks Nationalbank, Monetary Policy in Denmark (2009) 9. See further Ulla Neergaard, ‘European Exchange Rate Mechanism’ II (Chapter 5.4), in F Amtenbrink et al (eds), EU Law of Economic and Monetary Union (forthcoming). 78 Danmarks Nationalbank, Monetary Policy in Denmark (2009) 120. 79 Danmarks Nationalbank, Foreign-Exchange-Rate Policy and ERM 2 (2018). For further details, see Morten Spange et al, ‘Fastkurspolitik i Danmark’ in Danmarks Nationalbank, Kvartalsoversigt (2014). Importantly, the ECB can choose not to support the ‘krone’; see Agreement of 16 March 2006 between the European Central Bank and the national central banks of the Member States outside the euro area laying down the operating procedures for an exchange rate mechanism in stage three of Economic and Monetary Union, [2006] OJ C73/21 Article 3.1: ‘Intervention at the margins shall in ­principle be automatic and unlimited. However, the ECB and the participating non-euro area NCBs could suspend automatic intervention if this were to conflict with their primary objective of maintaining price stability.’

136  Ulla Neergaard has for many years been able to fulfil the convergence criteria and is, thus, qualified to join the eurozone.80 Formally viewed, the euro opt-out has only been activated once, namely in relation to the decision of Denmark not to join the euro when first set up.81 Nevertheless, it has been pointed out that in reality there have been several legal acts in which Denmark has had to abstain from participation as a consequence of the opt-out.82 At the same time, there are important initiatives in which Denmark did decide to take part. Among these, in particular, there are two, which may be referred to as important examples, namely firstly the Stability and Growth Pact from 1997 (and revised at a later stage),83 and secondly the Treaty on Stability, Coordination and Governance in the EMU (also called the ‘TSCG’ and the fiscal part thereof for the ‘Fiscal Compact’) from 2012.84 Concerning Denmark, Article 14(5) of this Treaty states, This Treaty shall apply to the Contracting Parties with a derogation, as defined in Article 139(1) of the Treaty on the Functioning of the European Union, or with an exemption, as referred to in Protocol (No 16) on certain provisions related to Denmark annexed to the European Union Treaties, which have ratified this Treaty, as from the date when the decision abrogating that derogation or exemption takes effect, unless the Contracting Party concerned declares its intention to be bound at an earlier date by all or part of the provisions in Titles III and IV of this Treaty.

The Treaty has been said to represent a major and unprecedented development which raises challenges on the nature and legitimacy of national constitutions as well as on the future of the European integration project.85 Nevertheless, it has not been viewed as constitutionally problematic by the important actors in Denmark. The Ministry of Justice has, thus, assessed that Denmark can ratify the Treaty on the basis of Section 19 of the Constitution and that accession hence does not require an application of the procedure in Section 20 of the Constitution or a change as such of the latter.86 At a more particular level, Andersen has explained the following, Denmark (as a non-euro area Member State) signed the Treaty on Stability, Co-ordination and Governance in the European Union (the Stability Treaty), and the Danish Parliament passed a resolution 80 See Martin Marcussen, ‘Denmark and the Euro opt-out’ in L Miles et al (eds), Denmark and the European Union (2014) 53, who explains that Denmark, like most other countries in the EU in 2014, was no longer able to fulfil the convergence criteria. 81 Tænketanken Europa, Forbeholdslandet Danmark. De mange aktiveringer af forbeholdene – og det voksende tab af suverænitet, Report (2017), www.thinkeuropa.dk/sites/default/files/notat.forbehold.2017.endelig0206_1.pdf, 44. The term ‘activation’ seems applied to contain instances where Denmark has used one of its opt-outs to stand outside the decision-making process (see also eg www.eu.dk/da/spoergsmaal-og-svar-folder/hvor-ofte-har-danmark-aktiveretforsvarsforbeholdet. The activation took place when Denmark due to its euro opt-out had to stand out from entering the third phase of the EMU. 82 Tænketanken Europa, Forbeholdslandet Danmark. De mange aktiveringer af forbeholdene – og det voksende tab af suverænitet, Report (2017), www.thinkeuropa.dk/sites/default/files/notat.forbehold.2017.endelig0206_1.pdf, 44. It is here argued that in 155 legal acts Denmark has been prevented from participating due to the euro opt-out (as to the kind of legal acts involved it is stated that: ‘De spænder fra økonomisk-politiske anbefalinger til euro-området og til de enkelte euro-lande, over ECB’s beslutninger om pengepolitik, retten til at påføre sanktioner og videre til mere tekniske afgørelser fra ECB.’). 83 European Council, Resolution on the Stability and Growth Pact (Amsterdam, 17 June 1997) (OJ 97/C 236/01). 84 It is accessible at www.eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=LEGISSUM:1403_3&from=EN. As to the possible ‘repatration’ of the TSCG into EU law, see Johannes Graf von Luckner, ‘How to Bring It Home – The EU’s Options for Incorporating the Fiscal Compact into EU Law’ (2018) European Law Blog, www.europeanlawblog. eu/2018/04/09/how-to-bring-it-home-the-eus-options-for-incorporating-the-fiscal-compact-into-eu-law/#more-4048. 85 Ibid, 1. 86 Ministry of Justice, Notat om visse forfatningsretlige spørgsmål i forbindelse med Danmarks ratifikation af traktaten om stabilitet, samordning og styring i Den Økonomiske og Monetære Union (den såkaldte finanspagt) (2012), www.justitsministeriet.dk/sites/default/files/media/Pressemeddelelser/pdf/2012/___20-vurdering_af_Finanspagten.pdf.

Denmark  137 for ratification of the Treaty in May 2012. The process of ratification was concluded in July 2012. In connection with the deposit of the instrument of ratification, the Government declared Denmark’s intention to be bound by all the provisions in Titles III and IV of the Stability Treaty. (At the same time, the Government declared that Denmark will not, pursuant to the Stability Treaty, be bound by any acts of Union law which only apply to euro area Member States.) In June 2012 the Parliament adopted the Budget Act which implements Article 3 of the Stability Treaty. The Budget Act is based on an agreement between the political parties which currently form the government as well as two political parties in opposition, and that agreement provides that the Budget Act can only be amended with the consent of all the political parties that are parties to the agreement. This arrangement is intended to enhance the binding effect of the Budget Act in order to guarantee that the fiscal balance rules are fully respected and adhered to throughout the national budgetary processes, cf. article 3(2) of the Stability Treaty. It should be noted that the Danish legal system does not provide for specific constitutional laws or specific legislative procedures. The Budget Act stipulates that the overall budgetary position of the general government must be balanced or in surplus (i.e. following Article 3 of the Stability Treaty). The Budget Act also includes provisions on expenditure ceilings for the State, the regions and the municipalities. Together with the Budget Act, the Parliament passed an act under which the Economic Council (an independent economic advisory body established by law) can assess the financial policy pursued. The Economic Council will also assess whether the expenditure ceilings decided by Parliament are in accordance with the financial policy objectives and whether the expenditure ceilings are complied with.87

In addition, it is worth mentioning that Denmark entered the Euro Plus pact in 2011, and also becomes subject to review pursuant to the so-called European Semester of the Stability and Growth Pact reforms.88 Moreover, it is the intention that those EU Member States which are outside the euro group can enter the Banking Union. The Ministry of Justice has suggested that joining would not, under the Danish Constitution, require a referendum.89 Nevertheless, there are some MPs who would still want a referendum.90 However, no decision has been made yet.91 If Denmark should join, it is considered to have certain consequences for Greenland and the Faroe Islands.92

87 Niels Andersen, ‘Appendix to the Danish Report’ in U Neergaard et al (eds), The Economic and Monetary Union. Constitutional and Institutional Aspects of Economic Governance within the EU. The XXVI FIDE Congress in Copenhagen 2014. Congress Publications Vol 1 (2014) 304. 88 For the European semester documents for Denmark, see www.ec.europa.eu/info/business-economy-euro/economicand-fiscal-policy-coordination/eu-economic-governance-monitoring-prevention-correction/european-semester/ european-semester-your-country/denmark/european-semester-documents-denmark_da. 89 Ministry of Justice, Notat om hvorvidt dansk deltagelse i det styrkede banksamarbejde forudsætter anvendelse af proceduren i grundlovens § 20 (2015), www.justitsministeriet.dk/sites/default/files/media/Arbejdsomraader/Vaaben/ ­ Notat%20om%20visse%20statsretlige%20sp%C3%B8rgsm%C3%A5l.pdf, and Arbejdsgruppen vedrørende analysearbejdet ift. dansk deltagelse i det styrkede banksamarbejde, Rapport om mulig dansk deltagelse i det styrkede banksamarbejde (2015) www.em.dk/media/9351/15-04-30-rapport-om-dansk-deltagelse-i-det-styrkede-banksamarbejde.pdf. 90 See eg Forslag til folketingsbeslutning om en folkeafstemning om dansk tilslutning til bankunionen, Beslutningsforslag nr B 52, Folketinget 2018–19, Folketingstidende TIllæg A, www.ft.dk/ripdf/samling/20181/beslutningsforslag/b52/20181_ b52_som_fremsat.pdf. 91 See eg Folketinget, Status for EU‘s bankunion, Europaudvalget 2018–19 EUU Alm.del EU-note E 12, 21 December 2018, www.ft.dk/samling/20181/almdel/euu/eu-note/12/1994673/index.htm. 92 Arbejdsgruppen vedrørende analysearbejdet ift. dansk deltagelse i det styrkede banksamarbejde, Rapport om mulig dansk deltagelse i det styrkede banksamarbejde (2015), www.em.dk/media/9351/15-04-30-rapport-om-dansk-deltagelsei-det-styrkede-banksamarbejde.pdf, 168-172. Para 1 of the Danish Constitution was (with effect in 1953) given its present content, namely, ‘This Constitutional Act shall apply to all parts of the Kingdom of Denmark’; cf translation from: www.legislationline.org/documents/section/constitutions. The text in Danish is, ‘Denne grundlov gælder for alle dele af Danmarks Rige.’ None of the previous constitutional acts had contained any equivalent provision regarding the geographic extent of the constitution; cf Frederik Harhoff, ‘§ 1’ in H Zahle (ed), Danmarks Riges Grundlov med kommentarer (Copenhagen, mforbundets Forlag, 1999) 29. The provision is commonly understood as implying that the act applies to all three ‘members’ of the Realm, ie Denmark, the Faroe Islands, and Greenland, where only Denmark is a member of the EU. Despite the apparent simplicity of formulation, behind the provision many complexities are considered to be

138  Ulla Neergaard In September 2017, the European Commission President Juncker significantly reflected upon the future of the EMU.93 In continuation thereof, the Commission by the end of that year launched a roadmap for deepening the EMU (including several concrete measures).94 The package in question includes the following four main initiatives: 1) a proposal to establish a European Monetary Fund (EMF), anchored within the EU’s legal framework and built on the well-established structure of the European Stability Mechanism (ESM); 2) a proposal to integrate the substance of the Treaty on Stability, Coordination and Governance into the Union legal framework, taking into account the appropriate flexibility built into the Stability and Growth Pact and identified by the Commission since January 2015; 3) a Communication on new budgetary instruments for a stable euro area within the Union framework setting out a vision of how certain budgetary functions essential for the euro area and the EU as a whole can be developed within the framework of the EU’s public finances of today and tomorrow; and 4) a Communication spelling out the possible functions of a European Minister of Economy and Finance who could serve as Vice-President of the Commission and chair the Eurogroup, as is possible under the current EU Treaties.95 Subject to the limitations of the present study, it may be noted that no constitutional obstacles to the adoption of these measures of major impact have been detected in Denmark, except for what has already been pointed out above. Two further observations of some related interest may be added. First, for obvious reasons it is a delicate matter to say to what degree Denmark can/ should take part in proposed measures, among others, because they are so closely related to the borderlines of its euro opt-out. Second, although not directly constituting a Danish constitutional obstacle in itself, it may be noted that since Denmark is not a member of the Eurogroup and is unlikely to become one in the near future, it has often been suggested that it would be unlikely that a Dane could become the President of the European Commission and even less likely that a Dane could become – as suggested by the Commission – the European Minister of Economy and Finance (which is intended to become – at the same time – both Commissioner for Financial and Economic Affairs and the chairperson of the Eurogroup).96 As a final aspect to touch upon here, reference may be made to the more recent fear that has been raised with regard to crisis management measures ending up having a quite severe impact on the organisation of the national welfare states. Among others, the eurozone now appears to be going in a different direction than envisaged by the EU as such. This is mainly caused by the handling of the euro crisis by more technical tools and prioritising economic objectives over social ones. Thereby, the fundamental idea behind the EU project – that it, in principle, would mainly support national welfare states primarily via general social standards and objectives, leaving the ways and means of social policy to Member States themselves – somehow seems left behind. In many Member States, this has led to deregulation and liberalisation, with an erosion

involved; see further eg Harhoff, Frederik, § 1, (1999) 29; and Henrik Zahle, ‘Hjemmestyret i dansk forfatningsret. En fredelig pluralisme’ in H Petersen et al, (eds) Retsforhold og samfund i Grønland (Nuuk, Forlaget Atuagkat/Ilisimatusarfik, 1998) 51. 93 J-C Juncker, State of the Union 2017. ‘Catching the Wind in Our Sails’, 13 September 2017 www.europa.eu/rapid/pressrelease_SPEECH-17-3165_en.htm. 94 European Commission, Commission sets out Roadmap for deepening Europe’s Economic and Monetary Union, 6 December 2017, www.ec.europa.eu/commission/publications/completing-europes-economic-and-monetary-unionfactsheets_en; and in particular European Commission, ‘Further steps towards completing Europe’s Economic and Monetary Union: a Roadmap’, COM (2017) 821. For a general account and critique thereof, see ‘Editorial Comments’ (2018) CML Rev, 709–18. 95 Ibid. 96 European Commission, ‘Communication from the Commission to the European Parliament, the European Council, the Council and the European Central Bank. A European Minister of Economy and Finance’ COM(2017) 823.

Denmark  139 of public services and privatisations as some of the consequences. In the same vein, Kilpatrick has expressed that: Driven by the imperatives of rapid fiscal consolidation and structural reform, there have been: extensive cuts to, or limitations in who can access, health and education provision; reduced access to and levels of pensions and other social benefits; reductions in the size and pay of the public sector; a decentralising and dismantling of collective bargaining; cuts to minimum wages and related employment safety nets for vulnerable workers; and reduced employment protection.97

In that context, it is worth briefly explaining whether a safe-harbour rule relating social rights could be said to exist in Danish constitutional law. Section 75(2) of the Constitution constitutes the most important provision in that regard. It has its origin way back in the original 1849 Constitution and is considered unique for having been introduced so early.98 It concerns the right to be supported by means of public assistance in case of need, and it more precisely states that any person unable to support himself or his family shall, when no other person is responsible for his or their maintenance, be entitled to receive public assistance, provided that he shall comply with the obligations imposed by statute in such respect. It is viewed as an early expression of the welfare state idea of the state’s obligation to take care of the weak groups of society.99 Nevertheless, nowadays the Danish Constitution and its interpretation are, as already indicated above, rather ‘old-fashioned’. Especially with regard to constitutional social rights the scope and extent thereof is controversial.100 The somewhat weak degree of constitutional protection may be understood by reference to a fairly recent judgment from the Danish Supreme Court, which at the concrete level concerned an amendment of the social assistance scheme in 2002 introducing a lower level of assistance to eligible citizens who cannot demonstrate seven years of residence out of the last eight years was breaching the Constitution.101 Two questions were of essential importance. First, is the level of the benefit sufficient in light of the right to social assistance protected at constitutional level (Section 75(2) of the Danish Constitution). Second, does it constitute discrimination on grounds of origin/ethnicity contrary to inter alia EU law, the European Convention of Human Rights and the Convention on Refugees.102 The outcome of the case was that the measure in question was upheld. Nevertheless, the case is seen to be of significance, as the Supreme Court acknowledged that Section 75 of the Constitution is judicially enforceable, which according to Ketcher was the first time it explicitly did so.103 She also points out that the Supreme Court to a certain

97 Claire Kilpatrick, ‘Are the Bailouts Immune to EU Social Challenge Because They Are Not EU Law?’ (2014) 10 (3) European Constitutional Law Review 393–421. See for further discussions, among others: Catherine Barnard, ‘EU Employment Law and the European Social Model: The Past, The Present and the Future’ (2014) 67(1) Current Legal Problems 199–237; Klaus Busch et al, ‘Euro Crisis, Austerity Policy and the European Social Model. How Crisis Policies in Southern Europe Threaten the EU’s Social Dimension’ (2013) Friedrich-Ebert-Stiftung International Policy Analysis, www. library.fes.de/pdf-files/id/ipa/09656.pdf, 1–35; Caroline de la Porte et al, ‘A new era of European Integration? Governance of labour market and social policy since the sovereign debt crisis’ (2014) 13 (1) Comparative European Politics 1–21; and Colm O’Cinneide, ‘Austerity and the Faded Dream of a “Social Europe”’ in A Nolan (ed), Economic and Social Rights after the Global Financial Crisis (Cambridge, Cambridge University Press, 2014) 169–201. 98 Jens Elo Rytter, Individets grundlæggende rettigheder (2013) 433. Also see eg Henrik Zahle, Danmarks Riges Grundlov med kommentarer (1999) 414. 99 Ibid. 100 Helle Krunke et al, ‘Social Rights in Denmark’ in C Wojtyczek (ed), Social rights as fundamental rights (The Hague, Eleven International Publishing, 2016) 111. 101 See U.2012.1761H (A v Egedal Kommune and Beskæftigelsesministeriet). 102 Ibid. 103 Kirsten Ketcher, ‘Retten til eksistensminimum – og retten til ikke at blive diskrimineret. Overvejelser i tilknytning til U.2012.1761H’ (2012) 4, Juristen, 177–85, 180.

140  Ulla Neergaard degree indirectly distanced itself from the prevailing perception in theory that the courts should not play an active role in the review of social rights.104 At a larger scale, the tendency is likely to be that a certain movement takes place with regard to the importance of social rights even in Danish constitutional law.105 Nevertheless, the Danish Constitution only provides what could diplomatically be referred to as a more reluctant degree of protection than when compared to more modern constitutions.

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law In general terms, at the Danish level of decision-making, proposals from the European Commission first move through a series of committees under the government and then in a number of committees under the Danish parliament, where the so-called European Affairs Committee (Europaudvalget) is the most important body.106 After the European Affairs Committee, the government participates in the Council of Ministers meeting, where the proposal in question is on the agenda.107 The European Affairs Committee is, thus, of central importance in the present context. It was established on a permanent basis following the Danish accession to the European Economic Community (EEC) in 1973, whereby the Danish parliament was the first national parliament in Europe to set up a negotiating mandate system, which requires the government to obtain negotiating mandates from a parliamentary committee before important deliberations in the Council.108 It has 29 members.109 The committee is evidently of essential importance as it has the ability to speak on behalf of parliament as a whole on most EU issues.110 Its most important task is to scrutinise the Danish government’s EU policy. The working procedures and competences of the committee are regulated on an ongoing basis by a series of reports embodying political agreements between the committee and the government.111 In more concrete terms, the system – as it looks today – has been described as follows: Developments in the EU decision-making process have made it necessary to strengthen the negotiating mandate system over the years. Formerly, the Government presented its proposed negotiating position to the European Affairs Committee when the matter was on the Council agenda. However, the use of trilogues and first reading agreements between the European Parliament and the Council has led to an increasing number of issues being settled in advance of their formal adoption by the Council. This has made it necessary to include the European Affairs Committee in the decision-making process at an earlier stage. As a consequence, a 2006 Committee report made it clear that the Government must seek a mandate in the European Affairs Committee on proposals of major significance before the Danish

104 Ibid. 183, Ketcher also points out that although there is scepticism about the strength of the provision it has after all never been claimed that Section 75(2) has only the status of an empty declaration rather than a right as such. 105 For reflections in that regard see in particular Jens Vedsted-Hansen, ‘Grundlovsbeskyttelse af sociale rettigheder: Gammeldags politik eller nymodens jura?’ in M Kjærum et al (eds), Grundloven og menneskerettigheder i et dansk og europæisk perspektiv (Copenhagen, Jurist og Økonomforbundets Forlag, 1997). 106 Helle Krunke, ‘Den danske beslutningsprocedure’ in BE Olsen, et al (eds), EU-retten i Danmark (2018) 173. 107 Ibid. 108 www.thedanishparliament.dk/en/committees/committees/euu. 109 Folketingets forretningsorden, § 7(4), www.ft.dk/da/dokumenter/bestil-publikationer/publikationer/forretningsorden/ forretningsorden-for-folketinget. 110 www.thedanishparliament.dk/en/committees/committees/euu. 111 Ibid.

Denmark  141 position is established. Furthermore, the Government may be required to ask the Committee for a new mandate if the proposal changes fundamentally during the negotiations … The Danish Parliament cooperates with the Danish MEPs on an individual political party basis and at regular meetings between the Members of the European Affairs Committee and the MEPs. Current European issues of common interest are discussed at these informal meetings … The Danish Parliament’s Sectoral Committees are involved in those EU issues that are within their respective spheres of competence. Their contribution is highly appreciated due to their technical expertise in the various policy areas. As a rule, the Sectoral Committees decide how and to what extent they wish to deal with EU issues. However, the Danish Parliament recently decided to strengthen the role of the Sectoral Committees in the parliamentary scrutiny of EU policy. Accordingly, the Sectoral Committees will be involved in prioritized EU issues on a mandatory basis. The Sectoral Committees and the European Affairs Committee also issue joint statements on green and white papers from the European Commission, and Sectoral Committees also play a key role in checking that the subsidiarity principle is taken into consideration.112

In relation to the Danish techniques of implementing secondary EU law, especially of directives, this area does not contain very specific circumstances to dwell upon. One important aspect to emphasise is, however, that generally Denmark is considered to be highly compliant with EU law.113

V.  Resulting Relationship between EMU Related Law and National Law This chapter has presented an analysis of the constitutional foundations of Denmark in particular in relation to the EMU. Generally, the analysis put an emphasis on explaining the particularities of the Danish situation due to its rather old-fashioned Constitution and its opt-outs. One of these opt-outs specifically concerns the euro, as a consequence of the initial so-called Danish ‘No’ in 1992 to the Treaty of Maastricht. The analysis demonstrated that the relationship between EMU-related law and Danish law is strongly affected by the Danish non-participation in the eurozone (by not having entered the third stage of the EMU). Denmark gives the impression of navigating as pragmatically and constructively as possible in the, after all, somewhat difficult waters, to the presumed benefit of all parties involved. Nevertheless, the situation can best be characterised as rather complicated and perhaps not sustainable in the long run.

References R Adler-Nissen, Opting Out of the European Union. Diplomacy, Sovereignty and European Integration (Cambridge, Cambridge University Press, 2014). N Andersen, ‘Appendix to the Danish Report’ in U Neergaard et al (eds), The Economic and Monetary Union. Constitutional and Institutional Aspects of Economic Governance within the EU. The XXVI FIDE Congress in Copenhagen 2014. Congress Publications Vol 1 (Copenhagen, Djøf Publishing, 2014). Arbejdsgruppen vedrørende analysearbejdet ift. dansk deltagelse i det styrkede banksamarbejde, Rapport om mulig dansk deltagelse i det styrkede banksamarbejde (2015). 112 Ibid. 113 See eg Birgitte Egelund Olsen et al, ‘Indledning’ in BE Olsen et al (eds), EU-retten i Danmark (2018) 25. See further eg Karsten Engsig Sørensen, ‘Gennemførelse af direktiver og regler, der understøtter forordninger’ in BE Olsen et al (eds), EU-retten i Danmark (2018) 217ff; and Nina Holst-Christensen, ‘Lovgivers gennemførelse af EU-domme’ in BE Olsen et al (eds), EU-retten i Danmark (2018) 289ff.

142  Ulla Neergaard C Barnard, ‘EU Employment Law and the European Social Model: The Past, The Present and the Future’ (2014) 67(1) Current Legal Problems 199–237. P Biering et al, ‘To Hold a Referendum or Not?’ (2015) 21 (1) European Public Law, 169–91. K Busch et al, ‘Euro Crisis, Austerity Policy and the European Social Model. How Crisis Policies in Southern Europe Threaten the EU’s Social Dimension’ (2013) Friedrich-Ebert-Stiftung International Policy Analysis. JP Christense, et al, Grundloven (Copenhagen, Djøf Publishing, 2015). JP Christensen, ‘Højesteret i dagens samfund’ in J P Christensen, et al (eds), Højesteret (Copenhagen, Juristog Økonomforbundet, 2015). JP Christensen, ‘§ 88’ in H Zahle (ed), Danmarks Riges Grundlov med kommentarer (Kopenhagen, mforbundets Forlag, 1999). JP Christensen, ‘The Supreme Court in Today’s Society’ in Christensen et al (eds), The Supreme Court of Denmark (Copenhagen, Djøf Publishing, 2015). J Christoffersen, ‘Den grundlovgivende dommer’ in H Krunke et al (eds), Rettens magt – Rettens ret. Festskrift til Henning Koch (Copenhagen Djøf Forlag, 2014). J Christoffersen et al, ‘The End of Virtue? Denmark and the Internationalisation of Human Rights’ (2011) 80 (3) Nordic Journal of International Law. B Dahl et al, ‘Højesteret og folkeretten’ in J Herre et al (eds), Festskrift till Stefan Lindskog (Stockholm, Jure, 2018). B Dahl, ‘Keynote Address’ in U Neergaard et al (eds), Proceedings: Speeches from the XXVI FIDE Congress. The XXVI FIDE Congress in Copenhagen 2014. Congress Publications Vol 4 (Copenhagen, Djøf Publishing, 2014). JH Danielsen, ‘Delegation of Sovereignty – Article 20 of the Danish Constitution: The story of a successful operation but a dead patient?’ in H Koch et al (eds), Europe. The New Legal Realism (Copenhagen, Djøf Publishing, 2010). JH Danielsen, ‘One of Many National Constraints on European Integration: Section 20 of the Danish Constitution’ (2010) European Public Law. JH Danielsen, Suverænitetsafgivelse (Copenhagen, Jurist- og Økonomforbundet, 1999). Danmarks Nationalbank, Monetary Policy in Denmark (2009). Dansk Institut for Internationale Studier, De danske forbehold overfor den europæiske union. Udviklingen siden 2000 (2008). O Due, ‘Danish Law in a European Context’ in B Dahl et al (eds), Danish Law in a European Perspective (Copenhagen, Forlaget Thomson, GadJura, 2002). F Harhoff, ‘§ 1’ in H Zahle (ed), Danmarks Riges Grundlov med kommentarer (Copenhagen, mforbundets Forlag, 1999). N Holst-Christensen, ‘Lovgivers gennemførelse af EU-domme’ in BE Olsen et al (eds), EU-retten i Danmark (Copenhagen, Jurist- og Økonomforbundet, 2018). K Hvidt, ‘Grundlovens baggrund og historie’ in H Zahle (ed), Danmarks Riges Grundlov med kommentarer (Copenhagen, mforbundets Forlag, 1999). M Kelstrup, ‘Denmark’s relation to the European Union: a history of dualism and pragmatism’ in L Miles, et al (eds), Denmark and the European Union (London, Routledge, 2014). K Ketcher, ‘Retten til eksistensminimum – og retten til ikke at blive diskrimineret. Overvejelser i tilknytning til U.2012.1761H’ (2012) 4 Juristen 177–85. C Kilpatrick, ‘Are the Bailouts Immune to EU Social Challenge Because They Are Not EU Law?’ (2014) 10 (3) European Constitutional Law Review, 393–421. H Krunke, ‘Den danske beslutningsprocedure’ in BE Olsen et al (eds), EU-retten i Danmark (Copenhagen, Jurist- og Økonomforbundet, 2018). H Krunke, ‘The Danish Lisbon Judgment – Danish Supreme Court, Case 199/2012, Judgment of 20 February 2013’ (2014) 10 (3) European Constitutional Law Review, 542–70. H Krunke, ‘Impact of the EU/EEA on the Nordic Constitutional Systems’ in H Krunke et al (eds), The Nordic Constitutions. A Comparative and Contextual Study (Oxford, Hart Publishing, 2018). H Krunke et al, ‘Social Rights in Denmark’ in C Wojtyczek (ed), Social rights as fundamental rights (The Hague, Eleven International Publishing, 2016). P Lachmann, ‘Grundlovens § 20 og traktater, der ændrer EU’s institutioner’ (2012) Juristen, 259–73. M Marcussen, ‘Denmark and the Euro opt-out’ in L Miles et al (eds), Denmark and the European Union (London, Routledge, 2014). L Miles et al, ‘Introducing Denmark and the European Union’ in L Miles et al (eds), Denmark and the European Union (London, Routledge, 2014).

Denmark  143 Ministry of Justice, Notat om hvorvidt dansk deltagelse i det styrkede banksamarbejde forudsætter anvendelse af proceduren i grundlovens § 20 (2015). Ministry of Justice, Notat om visse forfatningsretlige spørgsmål i forbindelse med Danmarks ratifikation af traktaten om stabilitet, samordning og styring i Den Økonomiske og Monetære Union (den såkaldte finanspagt) (2012). U Neergaard et al, ‘Activist Infighting among Courts and Breakdown of Mutual Trust? The Danish Supreme Court, the CJEU and the Ajos Case’ (2017) 36 Yearbook of European Law 275–313. U Neergaard, ‘“A More United Europe” and the Danish Conundrum’ in B Engelbrekt et al (eds), The Future of Europe: Political and Legal Integration Beyond Brexit (Oxford, Hart Publishing, forthcoming). U Neergaard, ‘The European Exchange Rate Mechanism II’ in F Amtenbrink, et al (ed), The EU Law of Economic and Monetary Union (forthcoming). JH Nielsen, ‘The pragmatic Euroscepticism of Scandinavia’ in B Leruth et al (eds), The Routledge Handbook of Euroscepticism (London, Routledge, 2018) 231. C O’Cinneide, ‘Austerity and the Faded Dream of a “Social Europe”’ in A Nolan (ed), Economic and Social Rights after the Global Financial Crisis (Cambridge, Cambridge University Press, 2014). BE Olsen et al (eds), EU-retten i Danmark (Copenhagen, Jurist- og Økonomforbundet, 2018). HP Olsen, ‘The Danish Supreme Court’s decision on the constitutionality of Denmark’s ratification of the Lisbon Treaty’ (2013) 50 CML Rev 1489–1504. P Pagh, ‘Præjudicielle søgsmål: Danske domstoles præjudicielle forelæggelser for EU-Domstolen’ in BE Olsen et al (eds), EU-retten i Danmark (Copenhagen, Jurist- og Økonomforbundet, 2018). P Pagh, ‘Ophævelsen af det danske retsforbehold og reservationen for asyl- og indvandringsområdet’ (2015) 42 Ugeskrift for Retsvæsen. C de la Porta et al, ‘A new era of European Integration? Governance of labour market and social policy since the sovereign debt crisis’ (2014) 13 (1) Comparative European Politics 8–28. LA Rehof, ‘The Danes, Their Constitution and the International Community’ in B Dahl et al (eds), Danish Law in a European Perspective (Copenhagen, Forlaget Thomson, 2002). JE Rytter, Individets grundlæggende rettigheder (Copenhagen, Karnov Group, 2013). KE Sørensen, ‘Gennemførelse af direktiver og regler, der understøtter forordninger’ in B E Olsen et al (eds), EU-retten i Danmark (Copenhagen, Jurist- og Økonomforbundet, 2018). M Spange et al, ‘Fastkurspolitik i Danmark’ in Danmarks Nationalbank, Kvartalsoversigt (2014), www. nationalbanken.dk/da/publikationer/Documents/2014/03/Fastkurspolitik_KVO1_2014.pdf. M Suksi, ‘Common Roots of Nordic Constitutional Law? Some Observations on Legal-Historical Development and Relations between Constitutional Systems of Five Nordic Countries’ in Krunke, et al (eds), The Nordic Constitutions. A Comparative and Contextual Study (Oxford, Hart Publishing, 2018). Tænketanken Europa, Forbeholdslandet Danmark. De mange aktiveringer af forbeholdene – og det voksende tab af suverænitet, Report (2017) www.thinkeuropa.dk/sites/default/files/notat.forbehold.2017.endelig0206_ 1.pdf. C Thorning, ‘Forsvarsforbeholdet’, in BE Olsen et al (eds), EU-retten i Danmark (Copenhagen, Jurist- og Økonomforbundet, 2018). Udenrigsministeriet, Notat til Udenrigspolitisk Nævn om Edinburgh-aftalen (2008). J Vedsted-Hansen, ‘Grundlovsbeskyttelse af sociale rettigheder: Gammeldags politik eller nymodens jura?’ in M Kjærum et al (eds), Grundloven og menneskerettigheder i et dansk og europæisk perspektiv (Copenhagen, Jurist og Økonomforbundets Forlag, 1997). M Wind, ‘The Scandinavians: The Foot-dragging supporters of European Law’ in M Derlén et al (eds), The Court of Justice of the European Union: Multidisciplinary Perspectives (Oxford, Hart Publishing, 2018). A Wivel, ‘As Awkward as They Need to Be: Denmark’s Pragmatic Activist Approach to Europe’ in M McCallion et al (eds), Nordic States and European Integration. Ackward Partners in the North (London, Palgrave Macmillan, 2018). H Zahle, (ed), Danmarks Riges Grundlov med kommentarer (Copenhagen, mforbundets Forlag, 1999). H Zahle, EU og den danske grundlov (Copenhagen, Chr Ejlers Forlag, 1998). H Zahle, ‘Hjemmestyret i dansk forfatningsret. En fredelig pluralisme’ in H Petersen et al, (eds) Retsforhold og samfund i Grønland (Nuuk, Forlaget Atuagkat/Ilisimatusarfik, 1998).

144

6 Germany STEFAN KORIOTH, JONAS MARX

Abstract: At least from a legal point of view, Germany is seen as a troublemaker in regard to deeper integration into the European Union (EU). The constitutional and legal analysis shows a more nuanced picture. The Constitution demands an active role of Germany inside a united Europe and manages to integrate EU law into the national legal order without major problems. The tension between national law and EU law is mainly due to the role of the Federal Constitutional Court in the assessment of EU law. It has developed doctrine on the EU, which allows it to install constitutional reviews and created easy access to its decisions. In particular, with regard to measures of the European Monetary Union, it has specified its review instruments in more detail and established mainly procedural hurdles for the participation of German institutions. However, it left itself margins of appreciation that allow room to manoeuvre in the assessment of European measures. Its case-law has less of an impact on measures taken than on the shaping of future decisions. The Court’s stance can, therefore, be understood as legal integration. Through its jurisdiction, the Court tries to promote the juridification of measures similarly as it has shaped the German legal order. Key words: Budgetary responsibility, Constitutional Court, Democratic legitimation, Eternity clause, Honeywell decision, Human Rights, Identity review, Lissabon decision, Maastricht decision, OMT Decision, Openness towards European law, Priority of application of European law, Responsibility of integration, Stability Union, supranational federation of sovereign Member States, Transfer Union, Ultra vires review.

I.  Main Characteristics of the National Constitutional System and Constitutional Culture A.  Main Characteristics of the National Constitutional System i.  Historical Outline and Principles The German Constitution in its structure, substance and goals is heavily influenced by the ­historical circumstances, in which it was drafted. The name ‘Grundgesetz’ (GG, ‘Basic law’) refers to the division of Germany after World War II as the authors of the Grundgesetz did not

146  Stefan Korioth, Jonas Marx want to give it the name Constitution (Verfassung) as long as Germany was a divided country.1 Moreover, the Constitution can and is understood as a direct response to the horrors and injustice of the national socialist-regime.2 This can be seen in various aspects of the German Constitution: the strong judicial protection of basic (human) rights, the emphasis on the parliamentary system contrary to an administrative or presidential system and the restriction of any democratic power to undermine the core principles of the Constitution. The systematic position at the beginning of the Grundgesetz underlines the important role of basic individual rights in Germany. The central concept of this chapter is in the dignity of every human being (Article 1 GG), which builds the core of all individual basic rights. In this manner, the Grundgesetz establishes the effective protection of human rights. Anyone opposing the German powers can defend his or her rights before a court and ultimately file a constitutional complaint (Verfassungsbeschwerde) to the Constitutional Court. Over the course of the history of the Federal Republic of Germany, the courts created a dense network of individual rights. The German Constitution characterises Germany as a democratic, social and federal ­republic. Along with the rule of law and the separation of powers, these characteristics build the key concepts of Germany’s Constitution (Article 20 GG). The Constitution’s main principles correspond for the most part with those in all Western democracies, especially in Europe. They, therefore, reflect the constitutional tradition of Western Europe. Nevertheless, the German approach to these principles may differ in details and has its specific character. As a social state, this particularly emphasises the responsibility of Germany to provide welfare to all people in the country. This provision predominantly needs to be substantiated through law. The republic principle prohibits any hereditary rule and demands temporary governance. The democratic principle is mainly taken into account in the parliamentary elections. In addition to the horizontal separation of powers between the legislative, executive and ­judicative branch, Germany also has the federal vertical division of powers between the German federation (Bund) and its states (Länder) in place. The basic rule for this separation (Article 30 GG) allocates all competences to the states unless the Constitution ascribes a competence explicitly to the federation. This leads to different factual effects inside the branches of government. In the judiciary, the division is drawn between the lower and supreme courts. While the lower courts of the different departments (civil, criminal, administrative, social, labour and tax) are state courts, the supreme court in each is a federal court. The execution of federal laws mostly remains assigned to the states. In the area of legislation, the general rule is universally valid, and the Constitutional Court demands a strict interpretation of exceptions to this rule.3 Therefore, the federal legislator has to prove its competence by providing a constitutional norm indicating its legislative authority for a specific subject matter. However, as the Grundgesetz has so many written exceptions, the federal level retains most of the legislative competences. This is further aggravated by both the federal legislator and the Constitutional Court not being very strict regarding the rule-exception ratio despite the Constitutional Court saying otherwise.4 People exercise their democratic power solely in elections for the federal parliament, state parliaments and local representatives. There are no plebiscites at the federal level,5 although the

1 See Justin Collings, Democracy`s Guardians – A History of the German Federal Constitutional Court 1951–2001 (Oxford, Oxford University Press, 2015), xvi. 2 Collings, Democracy`s Guardians, xxiif. 3 Cmp. ECLI:DE:BVerfG:2015:rs20150114.1bvr093112, para 28. 4 Fabian Wittreck, ‘Artikel 70-74‘ in H Dreier (ed), Grundgesetzkommentar Vol 2, (Tübingen, Mohr Siebeck, 2015), para 31. 5 The exception being Article 29(a) GG, in the case of a new delimitation of the federal territory.

Germany  147 Constitution does not explicitly prohibit them. To hold a referendum on the federal level, the Constitution would have to be amended.6 On a state level, referenda are possible, but only regarding matters that belong to the state’s legislative competence.

ii.  Government and Judiciary Bodies The central institution in the constitutional system in Germany is the parliament (Bundestag). It is the only body with direct democratic legitimation on the federal level and elects the ­chancellor and plays a central role in the legislative process. The states take part in the federal legislative process via the federal council (Bundesrat) consisting of representatives of the state governments. After his or her election, the chancellor chooses his or her cabinet, and together they form the government. The government has the political leadership in Germany and also forms the leading body of Germany’s federal administration. The head of state, the federal president, fulfils solely representative functions. To underline his or her secondary role, the president is not elected directly by the people, but indirectly by the Bundestag and representatives of state parliaments. A judicial review of constitutional matters is provided by the Federal Constitutional Court (Bundesverfassungsgericht). Among other duties, the Court has the authority to decide disputes between the high state organs, review potentially unconstitutional laws and defend the citizens against violations of their constitutional rights.

iii.  Limits of Constitutional Change A constitutional amendment requires a two-thirds majority of both the Bundestag and the Bundesrat (Article 79(2) GG). Furthermore, the text of the Constitution has to be altered to prevent constitutional laws outside the Grundgesetz (Article 79(1) GG).7 However, due to the historical experience of having a democratic Constitution denatured into a dictatorship, the parliament does not have a limitless right to change the Constitution. According to Article 79(3) GG, the Grundgesetz prohibits a change of its integral principles contained in Articles 1 and 20 GG (Ewigkeitsklausel, eternity clause). This covers all basic rights in their core as well as institutions that are necessary to execute the principles set out in Article 20 GG. Any constitutional amendment which fails to achieve this standard is considered unconstitutional and, therefore, invalid.

B.  Constitutional Culture The German Constitution is generally regarded as a success story.8 It is credited to be a significant stabilising factor in leading the young German republic back to a liberal democratic society and stable political conditions.9 The terror of the Nazi-Regime tainted the patriotism towards the German statehood. The Constitution became the stronghold around which the German ­society could gather.10 For many, the Grundgesetz has been the guarantee that allowed Germany to develop 6 Horst Dreier, ‘Artikel 20 (Demokratie)’ in: Dreier (ed), Grundgesetzkommentar, para 106. 7 This happened in the Weimar Republic. 8 Dieter Grimm, ‘Identität und Wandel – das Grundgesetz 1949 und heute’ (2009) 37, Leviathan, 603–616, 606ff. 9 Collings, Democracy`s Guardians, xvii. 10 See the concept of Constitutional patriotism: Dolf Sternberger, Verfassungspatriotismus, (Frankfurt a. M. Insel, 1990); Grimm ‘Identität und Wandel’, 605.

148  Stefan Korioth, Jonas Marx in freedom and prosperity. This, among other reasons, is why the Constitution greatly influences the entire German legal system. It provides the guidelines for the interpretation of the law in general. It marks the cornerstones for politics in Germany, expanding in all the branches through constitutional rights and methods such as interpretation of law accordant to the Constitution or indirect effect of basic rights between citizens. Considering the experiences of the Nazi Regime, which saw both the self-abandonment of the parliament and excessive administrative power, the Constitutional Court was the designated guardian of constitutional order. Through its active practice, which was made possible by the relatively easy access to its rulings, the Court could provide a wide variety of judgements covering every aspect of the German Constitution. It used these rulings to strengthen basic rights and provide a rigid system for exercising constitutional powers and application of policies, sometimes even by extending the written rules to fit modern subjects. Thus, it has created a considerable amount of law made by judges.11 Although it gained much trust and is praised for its impartiality, the dominant role of the Constitutional Court has been subject to criticism. In particular, it is said that the widespread practice stifles the other constitutional bodies. It predetermines the legislation through its constantly growing number of decisions and also hinders political innovation on the side of the government.12 Political actors try to anticipate the Court’s decisions and sometimes even leave it to the Court to decide on the details in some areas of policy.13 Furthermore, the Court’s dominant role is deemed to shift the interpretation away from the actual Constitution towards the sole interpretation of the Court’s decisions.14 These points of criticism underline the importance of the Constitution as interpreted by the Constitutional Court in the German legal system.

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  EU and EMU Membership i.  Constitutional Foundation of Integration before 1992 Germany has a dualistic approach towards international treaties. To become effective in Germany, treaties have to transform into national law.15 This is deduced from Article 25 GG by reverse logic. The latter explicitly declares the general rules of international law as a part of the federal law without any national implementation. Therefore, every other treaty has to be transferred into German law by a legislative act. The transformation law gives treaties the rank of parliamentary law, which places them generally in the review scope of the German Constitutional Court.

11 See Roman Herzog, ‘Das Bundesverfassungsgericht im Prozess der deutschen Einigung‘ in J Burmeister (ed), Germania restituta (Köln, Heymann, 1993), 161 (165), who says the Grundgesetz had initially 146 Arts; and now has 15–16,000 pages of decisions by the Constitutional Court. 12 Matthias Jestaedt, ‘Wer Verfassungsrecht sät, wird Verfassungsrechtsprechung ernten‘ in M Jestaedt, C Möllers, O Lepsius, C Schönberger, Das entgrenzte Gericht (Berlin, Suhrkamp, 2011) 79, 85ff. 13 Klaus Schlaich, Stefan Korioth, Das Bundesverfassungsgericht (München, Beck, 2018), para 544; Philipp Dann, ‘Verfassungs gerichtliche Kontrolle gesetzgeberischer Rationalität‘ (2010) 49, Der Staat, 630ff. 14 Bernhard Schlink, ‘Die Entthronung der Staatsrechtswissenschaft durch die Verfassungsgerichtsbarkeit‘ (1989) 28 Der Staat, 161. 15 ECLI:DE:BVerfG:2004:rs20041014.2bvr148104, para 34f.

Germany  149 Germany is a founding member of the EU and its predecessors and participated in all phases and steps of integration. The constitutional foundation for these different treaties, which led to European integration, used to be Article 24(1) GG. The norm shows the openness of the German constitutional system towards international law and cooperation.16 This doctrine is the root of the later established openness towards EU law (see below). The provision allows for the transfer of sovereign rights to international organisations under the condition of parliamentary law. This would have ranked as EU law below constitutional law. However, in the light of the jurisdiction of Court of Justice of the European Union (CJEU), EU law soon received special status in the architecture of national law, which allows for the enforcement of the effet utile of EU law.17

ii.  Constitutional Foundation after 1992 With the progression of European integration, the sufficiency of the old basis for the integration has been challenged. For this reason, Article 23 GG was drafted. The unification of Germany made the old content of Article 23 GG obsolete. Consequently, the decision was taken to increase the influence of the parliament and the Bundesrat due to the strengthening of competences of the EU shifting attention away from the parliament towards the government.18 Along with Article 23 GG, the preamble of the Grundgesetz declares Germany as an equal member of unified Europe. Article 23 GG fulfils three tasks: it prescribes Germany’s participation inside the Union, sets the general limits of this involvement and maps out the rules for the participation and information of the Bundestag and Bundesrat in EU matters. a)  Participation in the EU and the EMU The Constitution mentions the participation of Germany in a united Europe twice. It defines this as a goal in the preamble and substantiates it Article 23 GG, which sets out in para 1: With a view to establishing a united Europe, the Federal Republic of Germany shall participate in the development of the European Union that is committed to democratic, social and federal principles, to the rule of law, and to the principle of subsidiarity, and that guarantees a level of protection of basic rights essentially comparable to that afforded by this Basic Law. To this end the Federation may transfer sovereign powers by a law with the consent of the Bundesrat. The establishment of the European Union, as well as changes in its treaty foundations and comparable regulations that amend or supplement this Basic Law, or make such amendments or supplements possible, shall be subject to paragraphs (2) and (3) of Article 79.

The first sentence mandates participation in the EU and EMU as a part of the European treaties. However, it establishes certain conditions for participation. These conditions reflect the general shared democratic principles and federal principles of the EU. Even though the provision could have set integration limits, it is a more general condition meaning the European treaties have to reflect the basic principles of Western democracy and its tradition. Therefore, within the current system, Germany has to actively participate in the EU.19 This Article is understood as an expression of openness towards international cooperation and European integration.

16 ‘Artikel 24’ in M Sachs (ed), Grundgesetz (München, Beck, 2018), para 6. 17 ECLI:DE:BVerfG:1986rs19861022.2bvr19783, par. 98, 116; Rudolf Streinz, ‘Vollzug europäischen Rechts durch deutsche Organe’ in J Isensee, P Kirchhof (eds), Handbuch des Staatsrechts X, (Karlsruhe, Müller, 2004), §218 para 44. 18 Ferdinand Wollenschläger, ‘Artikel 23‘ in H Dreier (ed), Grundgesetzkommentar Vol 2, para 4ff. 19 ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 225; Wollenschläger, ‘Artikel 23‘, para 37.

150  Stefan Korioth, Jonas Marx The Constitutional Court corroborates this view through its doctrine of openness towards EU law (Europarechtsfreundlichkeit; literally, amicability towards European law). ‘The Grundgesetz calls for European integration and an international peaceful order. Therefore, not only the principle of openness towards international law, but also the principle of openness towards European law (Europarechtsfreundlichkeit) applies’.20 Sentence 2 of Article 23(1) GG clarifies that Germany can transfer sovereign powers to the EU. This is specified for the central bank in Article 88, Sentence 2 GG. The central bank (Deutsche Bundesbank) has been traditionally legally independent for most of its existence, but this status was not constitutionally guaranteed. With the integration of the central bank into the independent ECB, independence is now a constitutional demand indirectly through EU law.21 Parliamentary law is required under the consent of the Bundesrat to transfer powers, which implies the stronger form of participation of the Bundesrat. The modification of primary EU law and the implementation of secondary EU law that changes the Grundgesetz have to meet the same requirements as an amendment to the Constitution. This applies to all methods of altering or amending the treaties, as clarified by the law on the responsibility of integration (Integrationsverantwortungsgesetz), which forces the representative of Germany to repudiate any proposition unless the Bundestag decides on it through parliamentary law. As the last sentence points out, in the agreement on new European treaties, any significant change of the primary EU law and every regulation that amends or supplements the Grundgesetz must comply with the requirements of Article 79(2) and (3) GG. Article 79(2) GG prescribes a two-thirds majority in both the Bundestag and Bundesrat. As pointed out before, referenda are not stipulated for this process. Article 79(3) GG sets the ultimate limit for the integration as well of domestic constitutional alteration.22 b)  EU – Closely Related Instruments Although the Constitutional Court has not decided specifically on this matter, the rules should also apply to measures and treaties outside the EU. The Constitutional Court agreed the Bundestag’s information rights according to Article 23(2) GG, which is to be applied in all matters in relation to the EU. All the rules apply not just to processes inside the EU, but also to bodies such as ESFS and ESM.23 This should also apply to the rules and provisions according to Article 23(1) GG.24 Consequently, there is no legally substantive difference between EMU-related measures outside the European legal order and regular legal acts by the EU in Germany.25 c)  Implementation of European Measures Therefore, instruments outside the European legal order such as the European Stability Mechanism and the Fiscal Compact are implemented through normal legislation. The same applies to the

20 ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 225. 21 Ulrich Häde, ‘Artikel 88’ in W Kahl, C Waldhoff, C Walter, Bonner Kommentar zum Grundgesetz, Vol 17 (Karlsruhe, Müller, 2019) para 185ff; 249ff. 22 ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 230 ‘The minimum standard protected by Article 79.3 GG must not fail to be achieved even by Germany’s integration into supranational structures.’ 23 ECLI:DE:BVerfG:2012:es20120619.2bve000411, para 99f. 24 The Bundestag has the same position on these issues, as shown in the reasoning for law integrating the Fiscal Compact, which refers to Art 23(1) GG, Ludger Schlief, Bernd Schulte, ‘Anmerkungen zur innerstaatlichen Umsetzung des Fiskalvertrages‘ (2013) Zeitschrift für Gesetzgebung, 121, 126; Franz Möller, Martin Limpert, ‘Die Parlamentarisierung der politischen Willensbildung in europäischen Angelegenheiten‘ (2013), Zeitschrift für Gesetzgebung, 44, 55. 25 Wollenschläger, ‘Artikel 23‘, para 41.

Germany  151 TSCG, insofar as they needed to be implemented. There were no amendments on a constitutional level in response to the stability measures. Particularly, the 2009 established ‘debt brake’ of Article 109(3) GG, which forbids a deficit higher than 0.35 per cent of the GDP on a federal level and allows for no deficit of the Länder, is considered to fulfil the demands of the TSCG and the Fiscal Compact. According to Article 109(2) GG, Germany has to keep the obligations resulting from legal acts of the European Community for the maintenance of budgetary discipline ­pursuant to Article 104 of the Treaty Establishing the European Community and shall, within this framework, give due regard to the requirements of overall economic equilibrium.

III.  Constitutional Obstacles to EMU Integration A.  The Constitutional Court and the European Union In recent years, the focus regarding the relationship between German domestic law and EU law was on the judicial practice of the German Constitutional Court. It comes as no surprise that the Constitutional Court, in its leading role within the German constitutional system, has built its doctrine towards the EU integration that guides the government’s approach towards integration. It is crucial to outline the Court’s view on the composition of the EU to understand its stance. The Court developed this view in its decisions on the Maastricht and Lisbon Treaties. It defined the Union as a supranational federation of sovereign Member States (Staatenverbund).26 This is a newly coined term, which distinguishes its form from the older terms federal state (Bundesstaat) and federation of states (Staatenbund), the first being a fully unified national state and the latter a cooperation agreement of countries under regular international law.27 Thus, the Court recognises the singularity of the EU, which creates a deeper integration and a unified legal space to some extent without forming a unified national state nation. It acknowledges the positive effects of the cooperation and demands a positive approach of German institutions towards the EU. In the Court’s opinion, however, the deepening of the EU leads to challenges for democratic legitimation. The decisions on the European level affect German citizens directly and profoundly. Therefore, this power has to be backed by democratic legitimation.28 The legitimation can be found in two sources: representations of the citizens via the European Parliament on the one hand and democratic legitimacy of the governments of the Member States within the Council on the other hand.29 The Court deems these democratic links to be sufficient for the specific powers given to the EU in the current treaties. However, it considers the democratic legitimacy of the EU as deficient or not fully-fledged. Neither the European Parliament nor the Council fulfils the conditions the Court assesses necessary for democratic representation.30 Moreover, the European legal order is derived from the Member States’ consent. The EU gained competences only to the extent to which the Member States agreed to transfer their sovereignty.31



26 ECLI:DE:BVerfG:1993rs19931012.2bvr213498,

para 96; ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 229. para 90; Collings, Democracy`s Guardians, 278. 28 ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 261. 29 ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 286. 30 ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 276ff. 31 ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 276ff. 27 ECLI:DE:BVerfG:1993rs19931012.2bvr213498,

152  Stefan Korioth, Jonas Marx Two consequences can be concluded from this statement. First, the power of the European institutions has to be limited and numbered.32 Second, the only institution that is fully legitimated by the German people is the Bundestag and, thus meets the democratic legitimation by the German citizens. Therefore, the parliament has to act as a watchdog to ensure that democratic representation and accountability is guaranteed for the German people. It has to guarantee that the transfer of powers does not undermine its powers in a way that it no longer controls those executed over the citizens. This is called responsibility for integration (Integrationsverantwortung).33 The Court has imposed absolute and relative limits to integration as well as procedural hurdles, which the Bundestag must follow while implementing its policies. As the Court considers the EU dependent on the legitimation of its Member States, it reserves its right to review whether the German institutions violate the cornerstones of the Grundgesetz. These main principles, of course, are found in Article 79(3) GG. As the Constitutional Court held, ‘[t]he minimum standard protected by Article 79(3) GG must not fail to be achieved even by Germany’s integration into supranational structures’.34 The Constitutional Court itself holds the exclusive competence in Germany to review whether the integration process meets these standards.35 In such procedures, it does not examine EU law or acts of EU actors. Instead, it reviews whether German institutions fail to adhere to the relevant standards when transforming EU acts into national law or enacting EU measures. The Court and the constitutional system do not distinguish between measures inside and outside the EU framework. The doctrines are applicable to every major decision at EU level. The eternity clause protects Articles 1 and 20 GG, which embody the Basic Rights and the state principles, respectively. Hence, it comes as no surprise that the main doctrines that the Constitutional Court uses, revolve around the protection of human rights on the one hand and the safeguarding of democratic legitimacy on the other.

B.  Human Rights The first time the Court broached the subject of its competence regarding the range of possibilities in reviewing EU law was in a ruling, which was later referred to as Solange I (‘As long as – I’) in 1974. In its holdings on a comparatively insignificant import fee issue, the Court was forced to deal with the question of the competences of EU law within the German legal framework. On the basis of this case, the Court developed the first ‘As long as – formula’. It states that as long as there is no protection of basic rights at the EU level comparable to the level of protection afforded by German law, the Constitutional Court reserves the right to review whether the German administrative act, which is based on EU law, does not contravene German basic rights.36 Considering the role the Constitutional Court has played in the protection of basic rights in the past, the decision not to let the scope of review slip was understandable. However, this placed the Court in the delicate position of at least indirectly having to review EU law. This was especially problematic as the protection of basic rights at the EU level at that time was already considered to be sufficient by some scholars. The Constitutional Court went along with this opinion a few years later in its second ‘Solange’ ruling (‘As long as – II’) in 1986. It overturned its first

32 ECLI:DE:BVerfG:2009:es20090630.2bve000208,

para 298. para 236. 34 ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 230. 35 ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 240ff. 36 ECLI:DE:BVerfG:1974:ls19740524.2bvl5271. 33 ECLI:DE:BVerfG:2009:es20090630.2bve000208,

Germany  153 ruling and amended it by stating that as long as the standard of human rights protection at the EU level is comparable to that in Germany, the Constitutional Court will not review EU acts and national implementing acts under the invocation of German basic rights.37 This approach towards the protection of basic rights has generally stayed intact beyond the Maastricht and Lisbon Treaties. A new chapter was opened with a number of decisions on the European Arrest Warrant (EAW). The Constitutional Court has stopped the execution of EAWs that demanded the ­extradition of convicted criminals to the other Member States on the grounds of the violation of minimum standards of human dignity. This affected the processual standards of conviction, as well as conditions of detention in the respective Member States.38 This new line of decisions seems to be restricted to the execution of EAWs and should not have any impact on the EMU.

C.  Democratic Legitimacy i.  Ultra Vires Review The next challenge arose with the further integration of the EU. After the Maastricht Treaty, parliamentary approval was challenged before the Constitutional Court. It introduced the first of two validation tests that could curb the integration or at least put the limits of EU law into question: the – although not so named in the ruling – ultra vires review.39 All EU acts have to lie within the competences afforded to the EU by the Member States. Furthermore, the EU may not be given the capacity to determine its competences.40 Should an act exceed these limits, it is not applicable in Germany. In its statement of grounds, the Court refers to the EU law principle of conferral. Accordingly, the EU enjoys only the competences the EU Member States have granted it. The EU law gains its validity in Germany via the national law transforming the treaties into national law. If that requirement is not met, the act is not consistent with the parliamentary approval of the treaty.41 This means that German authorities are not bound by the exceeding acts of the EU, as they are not covered by the original approving act of the German Parliament, which guarantees democratic legitimation for German participation in the EU. While the ‘as long as’ rulings centred around basic rights, which are ultimately protected by Article 1 GG, the more recent line of decisions, starting with the Maastricht decision, featured an emphasis on the democratic legitimation stipulated in Article 20 GG. The then developed ultra vires formula was reiterated in all later decisions, which helped to shape and define the conditions under which it is actually applicable. This clarification of the role of the ultra vires review is ­especially apparent in the ‘Honeywell’ ruling. In this case, the Court found that an ultra vires act may only be reviewed as such if three requirements are fulfilled: the transgression of competences is both substantial and blatant, the exceeding act must lead to a significant shift of sovereign powers towards the EU, and the CJEU has had the opportunity to review the competence according to its standards.42 Thus, in applying the ultra vires test, the doctrine of openness towards EU law is respected.43 37 ECLI:DE:BVerfG:1986rs19861022.2bvr19783. 38 See ECLI:DE:BVerfG:2015:rs20151215.2bvr273514; ECLI:DE:BVerfG:2017:rs20171219.2bvr042417; ECLI:DE:BVerfG: 2018:rk20180816.2bvr023718; ECLI:DE:BVerfG:2018:rk20181001.2bvr184518. 39 Term coined in ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 240. 40 ECLI:DE:BVerfG:1993rs19931012.2bvr213498, para 106. 41 ECLI:DE:BVerfG:1993rs19931012.2bvr213498, para 106. 42 ECLI:DE:BVerfG:2010:rs20100706.2bvr266106, para 60ff. 43 ECLI:DE:BVerfG:2016:rs20160621.2bvr272813, para 156ff.

154  Stefan Korioth, Jonas Marx Hitherto, the Constitutional Court has referred two cases to the CJEU, both regarding the measures of the ECB (OMT,44 PSPP45). The Constitutional Court generally accepted the primacy of the CJEU regarding the interpretation of EU law. In interpreting EU law, ‘the Court of Justice reaches its limit only when an interpretation of the Treaties is manifestly utterly incomprehensible and thus objectively arbitrary’.46 It clarified in the subsequent passage, However, finding that competences have been exceeded in a manifest way does not require there to be no differing legal views on the respective issue. The fact that academia, politics or the media – often acting upon own interests – consider an act to be unobjectionable does not in principle hinder the Federal Constitutional Court from finding that competences have been manifestly exceeded.47

In the decision, the Court also acknowledged that it is the CJEU that determines the interpretation and application of EU law, including the determination of the applicable methods. As long as the Court of Justice applies recognised methodological principles and does not act in a way that is objectively arbitrary, the Federal Constitutional Court must respect judicial development of the law by the Court of Justice even when the Court of Justice adopts a view against which weighty arguments could be made.48

This concession is important because the methods of the Court when interpreting the competences in the context of the German federal state differ widely from the methods used by the CJEU to determine the competences of the EU. When the Court decides whether an act of public authority is incumbent upon the Länder or the federal level, it uses, in theory, a conditional attribution of competences. Only if the sector of government, in which a policy is enacted, is allocated on the federal level, do federal authorities have the power to enact the policy.49 The objective of the measure is regarded as secondary. At EU level, however, the Treaties install a goal-orientated attribution of the competences between the EU and the Member States.50 Therefore, the CJEU evaluates the aims of the policy put forward by the European organs, grants the organs a wide margin of appreciation to fulfil their tasks, but also limits the exercise of competences under the principle of proportionality. In the OMT Decision, the Constitutional Court generally accepted this method and bound itself to the findings of the CJEU even though it raised objections against the judgement. The critique of the Constitutional Court is based on three arguments. The Court considers the enquiry of the CJEU was not sufficient in regard to whether the motivation of the ECB was monetary policy.51 The second objection raised was that the CJEU did not accommodate the principle of conferral sufficiently in accepting the goals of EU institutions.52 Lastly, the Court raised concerns whether the independence of the ECB, which means a reduced democratic ­legitimacy simultaneously, calls for strict judicial control of its mandate.53 However, it did assess the ­safeguards established by the CJEU to be sufficient so that the measure is not a substantial

44 ECLI:DE:BVerfG:2016:rs20160621.2bvr272813. 45 ECLI:DE:BVerfG:2017:rs20170718.2bvr085915. 46 ECLI:DE:BVerfG:2016:rs20160621.2bvr272813, para 149. 47 ECLI:DE:BVerfG:2016:rs20160621.2bvr272813 para 150. 48 ECLI:DE:BVerfG:2016:rs20160621.2bvr272813 para 161. 49 Fabian Wittreck, ‘Artikel 30‘ in H Dreier (ed), Grundgesetzkommentar Vol 2, (Tübingen, Mohr Siebeck, 2015), para 9ff; 19ff. 50 Martin Nettesheim, ‘Kompetenzdenken als Legitimationsdenken‘(2014) 69 Juristen Zeitung, 585. 51 ECLI:DE:BVerfG:2016:rs20160621.2bvr272813 para 182. 52 ECLI:DE:BVerfG:2016:rs20160621.2bvr272813 para 183. 53 ECLI:DE:BVerfG:2016:rs20160621.2bvr272813 para 187.

Germany  155 exceeding act. In the PSPP54 decision the Constitutional Court found the reasoning of the CJEU as insufficient for similar reasons as expressed in the OMT decision. The Court regards it as necessary that the wide margin of appreciation in assessing the competence of EU institutions is met with a thorough review under the principle of proportionality.55 As it considered the CJEU to have failed to fulfill this duty to conduct a thorough review, the Constitutional Court performed an autonomous review on whether adopting and implementing the PSPP remain within the competence conferred on the ECB and will do so in similar cases.56

ii.  Identity Review The second test was developed by the Constitutional Court in the course of its Lisbon ruling. The decision of the Court, in this instance, acknowledges a more far-reaching integration into the EU. As this goes hand-in-hand with more interference in domestic legislative competences, the process demands sufficient democratic legitimation. Upon analysis of the democratic structure of the EU, the Court found that the democratic framework of the EU would be insufficient for a democratic state, yet is adequate to cover the competences afforded to the EU as a supranational structure. The only governmental institution, which has been completely democratically legitimised in Germany, is the Bundestag. Consequently, the Bundestag elections are the only opportunity for German citizens to make use of their voting rights effectively. In order to protect this form of democratic legitimation, it is incumbent upon the Bundestag to ensure that ‘sufficient space is left to the member states for the political formation of economic, cultural and social living conditions’57 during the transfer of powers to the EU in the integration process. In this vein, the Constitutional Court recognises the following areas of legislation, which imperatively fall under the responsibilities of the Bundestag: Decisions on substantive and formal criminal law (1), on the disposition of the monopoly on the use of force by the police within the state and by the military towards the exterior (2), fundamental fiscal decisions on public revenue and public expenditure, the latter being motivated, inter alia, by social policy considerations (3), decisions on shaping living conditions in a social state (4) and decisions of particular cultural importance, for example on family law, the school and education system and on dealing with religious communities (5).58

Point (3) is especially relevant for economic and fiscal integration. It is also the only area that the Constitutional Court developed further in subsequent decisions. It reinforced that ‘the ­principle of democracy requires that the German Bundestag remains the place in which autonomous decisions on revenue and expenditure are made, including those with regard to international and European liabilities’.59 However, this also displays the willingness on the side of the Bundestag for further integration, provided it retains a sufficient amount of influence over these expenses.

54 This passage and all following remarks on the PSPP decision are a subsequent addition to the text originally submitted in Spring 2019 during galley proofs. Due to the narrow timeframe, these additions only touch on the most important consequences of this decision. 55 ECLI:DE:BVerfG:2020:rs20200505.2bvr085915 para 133. 56 ECLI:DE:BVerfG:2020:rs20200505.2bvr085915 para 163, 164. 57 ECLI:DE:BVerfG:2010:rs20100706.2bvr266106, Headnote No 3. 58 ECLI:DE:BVerfG:2010:rs20100706.2bvr266106, para 252. 59 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012, para 162.

156  Stefan Korioth, Jonas Marx ‘The larger the financial amount of the liability commitments or of commitment appropriations, the more effectively structured the German Bundestag’s rights to approve and to refuse and its right to monitor must be.’60 This postulates a proactive regulation on a national level to create the tools necessary for the protection of parliamentary rights. ‘For borderline cases of what is still constitutionally permissible, the legislature must, where necessary, make effective arrangements in the legislation that accompanies the Act of Assent to ensure that there is enough room for its responsibility with respect to integration’.61 Thus, this is a procedural hurdle. It does not limit Germany’s expenditures in the process of European integration. However, Germany ‘may not submit itself to financially significant mechanisms which (…) can result in incalculable burdens on the budget, be they expenses or losses of revenue, without having given its constitutive consent’.62 Accordingly, the identity review is to be carried out as a relative review and not to be applied as an ultimate limit. An ultimate limit following directly from the principle of democracy could only be exceeded if payment obligations and liability commitments took effect in such a way that the budget ­autonomy was not merely restricted but suspended for at least a considerable period of time.63 It is yet to be determined whether it is possible to transgress this threshold and, therefore, limit the amount of money that can be budgeted for the EU. Under the current system, the transfer of budgetary competences to the EU is not possible. The amount necessary to lose control over the German budget is undefined. It is also not yet reached if the liabilities represent the biggest part of the German budget.64 How long ‘a considerable period’ is, remains unclear as well. Overall, this absolute limit is specified in a way that makes a violation of constitutional rules improbable, if not impossible.

iii.  Relationship between the Different Reviews Every review applicable in this context revolves in one way or another around the ultimate limits of the eternity clause. This could be understood as a unification of review standards with the yardstick of Article 79(3) GG.65 The OMT Decision and the decision on the EAW lead in this direction. In the OMT ruling, the review of identity is distinctly mentioned in connection with the ultra vires review despite not playing a significant role in the case itself.66 The EAW cases transfer the identity review into the area of basic human rights.67 Nevertheless, the Court also made clear that in the ultra vires and identity review, it carries out two different assessment standards.68 The Court will likely shift its attention towards the identity review as it offers a number of advantages over the ultra vires review. In contrast to the latter, which always involved the task of re-reviewing primary EU law, the review of identity has its roots in the German Constitution. Thus, it also allows the Court space to be flexible in its reaction to the cases it has to decide. It created the responsibility of governmental institutions to monitor the integration under the



60 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012,

para 163. para 160. 62 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012, para 163. 63 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012, para 174. 64 ECLI:DE:BVerfG:2011:rs20110907.2bvr098710, para 135. 65 Cmp. Hans-Georg Dederer, ‘Die Grenzen des Vorrangs des Unionsrechts’ (2014) 69 Juristen Zeitung, 318ff. 66 ECLI:DE:BVerfG:2016:rs20160621.2bvr272813, para 136ff. 67 ECLI:DE:BVerfG:2015:rs20151215.2bvr273514, para 48. 68 ECLI:DE:BVerfG:2016:rs20160621.2bvr272813, para 153. 61 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012,

Germany  157 scope of the identity review in a similar way to the way they carry out their obligation to protect the basic rights of human beings.69 If the identity of the German Constitution, on which the ­citizens’ right to vote is founded, is perceived to be under threat, the state institutions are authorised to take action at the EU level through their influence in the Council in order to protect this right. This does not mean that there will be no ultra vires review in the future. It will be used to present preliminary references to CJEU. Thereby, the Constitutional Court forces the CJEU to answer the presented question and clarify the margin of competences of EU institutions.70

iv.  Admission to the Constitutional Court Both review standards are accompanied by easy access to the Constitutional Court. As both have their roots in the principle of democracy, the Court relied on the subjective side of that principle, the right to vote, to establish its jurisdiction in this subject area. The Grundgesetz affords every citizen the right to challenge consenting parliamentary decisions to EU acts or the participation in such acts. In order to do so, they have to reasonably claim that these undermine his or her right to vote by failing to fulfil the responsibilities intertwined with the integration process in accordance with German standards. Here lies a materialisation of the right to vote. The right was extended beyond the possibility of the formal voting act to the elected parliament having a decisive influence on the core competences of government. Ultimately, it is the Bundestag’s responsibility of integration, which the applicants defend.71 At least on a federal level, this gives rise to a unique situation. In contrast to other complaints to the Constitutional Court, one does not have to prove a violation of his or her personal rights for his or her case to be consigned to the jurisdiction of the Court. In light of these deliberations, it does not seem implausible that each major integrative act will be challenged before the Constitutional Court. Furthermore, the parties represented in the Bundestag can also challenge the parliamentary decision on the basis of a claim that it infringed the Bundestag’s responsibility of integration and thereby undermining its power. This process is called Organstreitverfahren (proceeding on a dispute between governmental bodies). Additional proceedings to the Constitutional Court are a Bund-Länder-Streit (dispute between the federation and the Länder) and the abstrakte or konkrete Normenkontrolle (abstract or concrete law review). The Constitutional Court encouraged drafting a new proceeding for the EU reviews, but this suggestion was not followed up by the legislation.72

D.  EMU Measures Challenged Before the Constitutional Court With few exceptions, every crisis management measure has been challenged before the Constitutional Court on the basis of the democratic objection or the Organstreitverfahren. 69 ECLI:DE:BVerfG:2016:rs20160621.2bvr272813, par. 166. 70 This can be interpreted as a way of forcing its view onto the CJEU, but it can also be seen as dialogue, as the Court emphasises that there is a collaborative partnership between itself and the CJEU, cmp. Peter M Huber, Europäische Verfassungs- und Rechtsstaatlichkeit in Bedrängnis, (2017) 56, Der Staat, 389, 407; also, the comments by Paul Craig, Menelaos Markakis, ‘Gauweiler and the legality of Outright Monetary Transactions’(2016) 41 European Law Review, 4, 14ff. 71 Matthias Jestaedt, ‘Warum in der Ferne schweifen, wenn der Massstab liegt so nah?’ (2009) 48, Der Staat, 497, 503 ff; Christoph Schönberger, ‘Die europäische Union zwischen “Demokratiedefizit” und Bundesstaatsverbot‘ (2009) 48 Der Staat 535, 539ff. 72 ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 241.

158  Stefan Korioth, Jonas Marx The complainants were mostly identical. Therefore, future steps of integration will certainly be ­challenged on the same basis. With an increasing number of cases, there is now a growing body of precedents, which allows for the anticipation of future decisions to a certain degree. However, the process is not yet complete. Furthermore, as will be shown, the Court has left room for interpretation by not setting up the precise requirements of absolute limitations of integration.

i.  Bilateral Loans and European Financial Stability Facility (EFSF) The first decision in the series of decisions regarding the euro crisis measures dealt with the bilateral loans for Greece and the EFSF simultaneously. The subject matters were the two national laws, which grant funding for bilateral loans and the EFSF, respectively. These decisions, simultaneously challenged at the EU level, were declared inadmissible by the Court.73 In its reasoning, the Court specified the benchmark for the identity review, especially for cases regarding the budgetary responsibility. The Bundestag may not cede its budgetary responsibility by losing control over income and spending for the future. It cannot surrender this authorisation to mechanisms, which could lead to unforeseeable burdens on the budget.74 For this reason, Germany cannot be a part of mechanisms that amount to budgetary accountability for decisions of other Member States.75 The Bundestag has a margin of evaluation when it comes to decisions on expenditures and guarantees regarding the EMU measures. ‘The legislature has a latitude of assessment, which the Federal Constitutional Court must respect’.76 The budgetary autonomy of the Bundestag must be undermined for a noteworthy period for it to exceed its prerogative.77 The Constitutional Court considered the laws on bilateral loans and the EFSF to be congruent with that limit. This was because neither the bilateral loans nor the contribution to the EFSF create a mechanism that results in unforeseeable burdens or undermine the principle of permanent budget autonomy.

ii.  The European Stability Mechanism (ESM) and Treaty on Stability, Coordination and Governance (TSCG, Fiscal Compact) The next decision on the list concerned the laws that regulate the process of granting funding for the ESM on the one hand and the Fiscal Compact on the other hand. Besides reiterating the requirements for the ultra vires and the identity reviews, the Court found that the ESM does not violate constitutional limits. However, Germany has to ensure that the Bundestag maintains its absolute authority over granting of financial aid to the ESM. Germany must not lose its de facto veto position78 and has to make sure it does not forfeit its voting rights on the board of governors of the ESM.79 Therefore, the Bundestag has to take precautions always to be able to meet the financial obligations on time and create reserve funds in advance to render the payments possible.80



73 ECLI:DE:BVerfG:2011:rs20110907.2bvr098710,

para 114. para 125. 75 ECLI:DE:BVerfG:2011:rs20110907.2bvr098710, para 128. 76 ECLI:DE:BVerfG:2011:rs20110907.2bvr098710, para 132. 77 ECLI:DE:BVerfG:2011:rs20110907.2bvr098710, para 135. 78 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012, para 191. 79 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012, para 199. 80 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012, para 200ff. 74 ECLI:DE:BVerfG:2011:rs20110907.2bvr098710,

Germany  159 As far as the Fiscal Compact is concerned, the Court sees no infringement of the budgetary responsibility. The Fiscal Compact’s content complies with both EU and national constitutional law. The regulations aim at preserving the budgetary autonomy rather than limiting it.81 It echoes the terms and concepts of both the ‘six-pack’ and the German Constitution, especially Articles 109, 109a, 115 and 143d GG.82 Furthermore, it does not give the Commission the ­possibility of setting binding parameters for the German budget.83

iii.  Outright Monetary Transaction The ECB’s announcement concerning purchasing state bonds on a large scale under the OMT programme received a very critical response in Germany. It led to the fear that it could influence interest rates of Member States’ bonds. Thus, they could provide economic aid to the Member States. Also, it was seen as an economic policy measure. Therefore, the programme could be a potential transgression of the ECB’s authority, which only allows for carrying out monetary policy. The fact that a complaint against the ECB acting ultra vires in this matter was brought before the Constitutional Court is subsequently not a big surprise. The Constitutional Court shared the applicant’s view and decided to submit the case to the CJEU. In its assessment, the Constitutional Court ascertained that the OMT programme was of a more economical than monetary nature, the implementation of which would exceed the mandate of the ECB. Also, it stated that ‘the OMT Decision aims at circumvention of Article 123 TFEU and violates the prohibition of monetary financing of the budget’.84 However, as the Court already stated in the Honeywell ruling, it is mandatory to give the CJEU the possibility to present its view on the interpretation of primary EU law. Following this precedent, the Court referred this case to the CJEU for a preliminary ruling for the first time in its history. In its referral, it also included comments on how the OMT programme could be restricted to be compliant with EU law and which conditions the programme would have to meet in order to do so: In the view of the Federal Constitutional Court, the OMT Decision might not be objectionable if it could, in the light of Article 119 and Article 127 et seq. TFEU, and Article 17 et seq. of the ESCB Statute, be interpreted or limited in its validity in such a way that it would not undermine the conditionality of the assistance programmes of the European Financial Stability Facility and the European Stability Mechanism (…), and would only be of a supportive nature with regard to the economic policies in the Union (…). This requires, in light of Article 123 TFEU, that the possibility of a debt cut must be excluded (…), that government bonds of selected Member States are not purchased up to unlimited amounts (…), and that interferences with price formation on the market are to be avoided where possible.85

For this, the Court recommended different safeguards: limited volume of a possible purchase of government bonds; no participation in a debt cut; observance of certain time lags between the release of a government bond and its purchase; and no holding of the bonds to maturity.

81 ECLI:DE:BVerfG:2012:rs20120912.2bvr139012, para 120; ECLI:DE:BVerfG:2011:rs20110907.2bvr098710, para 104. 82 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012, para 243; ECLI:DE:BVerfG:2012:rs20120912.2bvr139012, para 198ff. 83 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012, para 244. 84 ECLI:DE:BVerfG:2014:rs20140114.2bvr272813, para 87. 85 ECLI:DE:BVerfG:2014:rs20140114.2bvr272813, para 100.

160  Stefan Korioth, Jonas Marx The CJEU repudiated the view that the ECB exceeded its authority with the OMT programme but applied the principle of proportionality to prescribe particular precepts to regulate the actions of the ECB. It demanded that ‘sufficient safeguards must be built into its intervention to ensure that the latter does not fall foul of the prohibition of monetary financing in Article 123(1) TFEU’.86 The ECB is not allowed to announce its acquisitions in advance and is obliged to observe a predetermined minimum period between bond emission and purchase in order to ensure that the conditions of bond release have not been falsified. In addition to this, the ECB may also only purchase bonds from the Member States which have access to the bond market. The volume of the programme was de facto limited by the same reason. Lastly, the programme may only provide ‘for the purchase of government bonds as far as is it necessary to safeguard the monetary policy transmission mechanism and the singleness of monetary policy and that those purchases will cease as soon as those objectives are achieved’.87 In stating these safeguards, the CJEU took over most of the conditions the Constitutional Court held necessary for the acts of the ECB to remain within its mandate. After summarising the limits of the integration that have already been outlined, the OMT Decision redrafts these factual safeguards into legal orders and displays a general acceptance of the programme on the condition that these safeguards are implemented. This shows the Court’s principle-based approach to constitutional law. The interpretation of the law in Germany is based on a conditional set up, which is in stark contrast to the goal-orientated method through which EU law is interpreted and applied. Upon closer examination of the decision of the Court, it becomes apparent that its decision differs slightly from the CJEU ruling in two points. First, while referring to the Gauweiler decision, the Constitutional Court states that bonds may be held until they are mature in exceptional cases,88 whereas the CJEU simply remarked that the fact that the ESCB also has the possibility of holding the bonds it has purchased until maturity does not play a decisive role in this regard, since that possibility depends on such action being necessary to achieve the objectives sought.89

Secondly, the Court determined an obligation to limit the overall scale of the programme,90 whereas the CJEU only spoke of de facto limitations and the necessity not to announce the volume.91 To summarise the findings of the Court, for the most part, it echoes the previous findings of the CJEU while stating a few minor differences of opinion regarding integrative issues, with only a small part of the reasoning being decisive for the case.

iv.  Public Sector Purchase Programme The follow-up programme of the OMT, which was never executed, was the Public Sector Purchase Programme (PSPP). Under its mantle, the ECB purchased state bonds worth up to 60 billion euro monthly. The Constitutional Court also referred this case to the CJEU under the same claims as in the OMT case. The Constitutional Court doubted the compliance with Article 123 TFEU. It focused on (1) the condition that the bonds may be held to their maturity, (2) the problem that



86 ECLI:EU:C:2015:400,

para 102. para 112. 88 ECLI:DE:BVerfG:2016:rs20160621.2bvr272813, para 199. 89 ECLI:EU:C:2015:400, para 118. 90 ECLI:DE:BVerfG:2016:rs20160621.2bvr272813, para 199. 91 ECLI:EU:C:2015:400, para 116. 87 ECLI:EU:C:2015:400,

Germany  161 bonds can have negative interest rates and (3) creation of a guaranteed pick up of the bonds.92 It also raised doubts on the compliance with Articles 119 and 127 TFEU, as it considers the positive effect on the interest rates of EU Member States makes the programme an economic policy.93 The CJEU repudiated all these doubts on the compliance with EU law. It reiterated that despite the effects on the interest rates, the programme is, in fact, a monetary policy and the length and volume of the programme can be considered necessary to reach the goal of a stable inflation rate.94 The fact that the bonds may be held to maturity and may have negative interest rates does not violate Article 123 TFEU.95 The answer from the CJEU is considerably shorter and more decisive than in the OMT case. For the first time the Constitutional Court found a European act to be ultra-vires. It deemed the decision of CJEU concerning competences conferred on the European Union to be objectively arbitrary; it found that the CJEU failed to take the actual effect of the PSPP into consideration and had refrained from conducting am overall assessment and appraisal of its implementation.96 The reason for that being that “the combination of the broad discretion afforded the institution in question together with the limited standard of review applied by the Court of Justice of the European Union clearly fails to give sufficient effect to the principle of conferral and paves the way for a continual erosion of Member State competences”.97 The Court therefore conducted its own review. The mandate of the ECB is monetary policy. It detected various effects the PSPP has that are not just monetary policy in nature but rather economic policy.98 It determined that it is not ascertainable that the ECB took it upon itself to weigh the actual effects of the PSPP and balance them based on proportionality considerations.99 In conclusion, the Bundestag and the government were tasked to “take steps seeking to ensure that the ECB conducts a proportionality assessment in relation to the PSPP”100 to fulfill their responsibility with regard to European integration (Integrationsverantwortung). The ECB provided additional reasoning to the Bundestag. Whether this is sufficient, will be subject of other proceedings. Additionally, the Court decided on two more questions. First, the PSPP does not manifestly circumvent the prohibition in Article 123(1). This is particularly prevented by the purchase limit of 33% and the distribution of purchases according to the European Central Bank’s capital key.101 Secondly, the Court brought forward an example in which the budgetary responsibility of the Bundestag would be infringed on. This would be the case, if the risk-sharing regime for bond purchases under the PSPP were subject to (retroactive) changes.102

v. Conclusion The Constitutional Court is often described as one of the major opponents to further EU integration. It has created different tools, which effectively controls the German contribution at the EU level and a role model in the creation of similar review standards in the other Member States.



92 ECLI:DE:BVerfG:2017:rs20170718.2bvr085915, 93 ECLI:DE:BVerfG:2017:rs20170718.2bvr085915, 94 ECLI:EU:C:2018:1000,

para 86ff. para 100ff.

para 53ff. para 144ff. 96 ECLI:DE:BVerfG:2020:rs20200505.2bvr085915 para 123. 97 ECLI:DE:BVerfG:2020:rs20200505.2bvr085915 headnotes nr. 4. 98 ECLI:DE:BVerfG:2020:rs20200505.2bvr085915 para 170ff. 99 ECLI:DE:BVerfG:2020:rs20200505.2bvr085915 para 176. 100 ECLI:DE:BVerfG:2020:rs20200505.2bvr085915 para 232. 101 ECLI:DE:BVerfG:2020:rs20200505.2bvr085915 para 215ff. 102 ECLI:DE:BVerfG:2020:rs20200505.2bvr085915 para 227. 95 ECLI:EU:C:2018:1000,

162  Stefan Korioth, Jonas Marx Thus, the effect of the decisions goes beyond the impact it has on the German constitutional limits. The bottom line is that the Constitutional Court has until now never hindered an existing European measure, but may ­influence future ones.

E.  EMU Reform Scenarios i.  General Remarks The prediction concerning whether future reforms of EU and EMU will be considered constitutional faces a substantial amount of uncertainty. With the ever-growing number of decisions in this area, we are still looking at law in the making. This is especially true with regard to the fact that every legal rule in this subject can be considered law made by judges. Hence, even with extensive reasoning of the Constitutional Court and the legal traditions created by the decisions, the Constitutional Court solely decides on a case-by-case basis. There will always be certain scenarios, which the Court will differentiate from existing precedent cases. Furthermore, the doctrines laid down in the decisions contain a lot of rules and terms, allowing the Court to manoeuvre inside its doctrine. For example, it has introduced that violations must be ‘substantial’ and ‘blatant’ to be considered as exceeding limits if the Bundestag loses its budgetary responsibility for a ‘considerable amount of time’. In addition, the Court will base its review on the CJEU’s review, if the decision is not arbitrary. All of these terms can change in meaning and scope of the review on a case-by-case basis.103 Nevertheless, the decisions allow a prediction based on the yardstick given by existing decisions. As shown before, the Constitutional Court has set up two tests, which the EU measures and policies have to fulfil. The ultra vires review measures whether an EU act exceeds the competences given to the EU institutions under the EU Treaties. The Constitutional Court will first send a preliminary reference to the CJEU. Thus, it will only review those measures that it considers to be exceeding EU acts even though the CJEU considered them as complying with primary EU law. It will base its review on the CJEU’s decision provided that it is not arbitrary. Thus, the decision on the constitutionality of a measure is not simply based on the question of the existence of an exceeding act in the perspective of the Constitutional Court, but on the question of whether the CJEU’s decision upholding the measure is considered arbitrary. Of course, a prediction of a hypothetical reasoning by the CJEU on a future EMU reform will be even tougher. Hence, the assessment can solely be based on existing doubts on the existence of competence at the EU level. The identity review secures the responsibility of integration of the Bundestag. In the context of EMU reform, the budgetary responsibility of the Bundestag is most prevalent. Thus, the identity control is applicable if a measure creates obligations or liabilities for Germany or binds the Bundestag to budgetary rules, also and in particular in the future. The existing measures can be roughly divided into three groups of measures: (1) the creation of backstops and facilities, which provide financial aid for Member States such as EFSF and ESM, (2) rules and provisions to prevent excessive public debts such as these in the Fiscal Compact, and (3) the providing funds for structural reforms. For all the measures, it must be clear which guidelines are applicable in specific situations. For this reason, the two tests – developed to determine the constitutionality of EU – are specified to the different groups of measures. 103 Monica Claes and Jan-Herman Reestman, ‘The Protection of National Constitutional Identity and the Limits of European Integration at the Occasion of the Gauweiler Case’ (2015) 16 German Law Journal, 917, 923.

Germany  163 a)  Financial Facilities The facilities that provide financial aid were the subject of scrutiny by the Constitutional Court in its EFSF and ESM decisions. Therefore, these decisions are the blueprint for the Court’s assessment of future similar facilities. Both tests are applicable and crucial for these facilities as they face concerns of the exceedance of competences by the EU and responsibility of integration of the Bundestag. Within the scope of the ultra vires review, it is crucial to examine whether such facility violates the set-up of the rules of the Treaties. The Constitutional Court understands the totality of the Treaty provisions on national budgets as an enshrinement of the EU as a ‘stability Union’ instead of a ‘transfer Union’. The shift towards the latter would be considered a violation of Treaty rules. The Constitutional Court would assess under the identity review whether the established European institution determines liabilities for the German budget, which would paralyse the Bundestag in its decisions over the German budget. It will most probably, however, also establish procedural requirements in case a payment touches upon the budgetary responsibility of the Bundestag. b)  EMU Provisions on Member State Deficits The financial crisis led to public debt crises in many European countries. To address this issue, many crisis management tools and measures forced stronger budgetary discipline on EU Member States. These were accompanied by mandatory reports to and assessments by the European Commission. As shown before, the Constitutional Court did not scrutinise these rules very strictly. It never raised the issue of ultra vires, as the provisions are understood to be mandated by the Treaties. The Bundestag may bind itself to strict budgetary rules through EU law to preserve its power to decide on future budgets autonomously.104 The identity review is applicable because if the European Act establishes binding rules on the budget, the budgetary responsibility is concerned. As long as these rules are merely a European commitment, which do not formally limit the Bundestag’s capacity to determine the German budget, they cannot infringe on its rights. c)  Providing Funds for National Structural Reforms The recent reform initiatives specifically aim to strengthen the EMU by stipulating incentiveorientated restructuring funds. As against the sanction-based system under the current law, they have the advantage in that they undertake national restructuring voluntarily. Thus, the national legislative body keeps its sovereignty on economic policies. In light of the German constitutional limits as set up by the Constitutional Court, these measures raise questions regarding the identity and the ultra vires review. The refinancing and the fiscal assisting tools could be considered a violation of the prohibition of the ‘no bail-out’ clause. It is identified on every level that additional funds could set up the wrong incentive to not comply with the Treaties regarding fiscal discipline. As outlined, the Constitutional Court understands the EMU design under the current Treaties as a stability union. If measures are undertaken to stabilise the financially suffering Member States lead to permanent transfers, this attribution would change to a transfer union. Therefore, this transition would be considered an exceeding act. 104 ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 256; ECLI:DE:BVerfG:2012:rs20120912.2bvr139012, para 120; ECL:DE:BVerfG:2011:rs20110907.2bvr098710, para 104.

164  Stefan Korioth, Jonas Marx The identity review is concerned in two aspects. First, the funding of the national restructuring measures could stem from the German budget, which makes it an issue of the previously described budgetary responsibility. Every expense, reduction of income, or liability of the German budget need a consenting decision from the Bundestag. This is also the case if the ESM or similar construction provides the funding. Second, the restructuring programmes could be understood as a limit to the Bundestag’s ability to decide autonomously on its policies, as they create an incentive to follow the stipulations of the Commission. This should be a minor issue since the Constitutional Court has shown that it regards the Bundestag as being capable of making its own decision as long as it is not formally bound.

ii.  Directive on Laying Down Provisions for Strengthening Fiscal Responsibility and the Medium-Term Budgetary Orientation in the Member States The proposed Directive on laying down the provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States105 is, for the most part, a reintroduction of the content of the Fiscal Compact into the EU legal order. The Constitutional Court regarded the Fiscal Compact as compliant with European and national constitutional law. It preserves the EMU as a stability union, which strengthens the national responsibility for its budget. The Fiscal Compact conforms to the provisions in the treaties and does not limit the budgetary responsibility of the Bundestag. Neither the medium-term budgetary objective nor the correction mechanism is seen as a violation of the budgetary responsibility. The same applies to the independent body that monitors and assesses compliance with the objectives and the framework.106 As mentioned before, the budgetary responsibility and, therefore, the identity review is violated if the Bundestag loses its power to decide on the budget annually. In this vein, the measures such as permanent country-specific fiscal rules and correction mechanism, which are already in place under the Fiscal Compact, do not raise concern through the identity review. There are no constitutional concerns about the independent body. As long it does not replace the Bundestag’s decision even if Germany deviates from the fiscal rules and obligations, the independent body cannot infringe on the budgetary responsibility. As a comply-or-explain mechanism does not remove the Bundestag’s ability to draft a budget but forces merely justification towards the public, it also does not present a violation. Quite the contrary, an attempt to create exceeding debts would also violate German constitutional law.

iii.  Reform Delivery Tool A measure or redesign of already existing EU funds and budgets as foreseen in the Commission’s legislative proposal on new common provisions for the European Structural and Cohesion

105 European Commission, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States (2017). 106 Regarding the already demanded independent body under Regulation (EU) No 473/2013, Germany is very late on the establishment, see: Country Report Germany 2018, SWD(2018) 204 final: ‘In accordance with Regulation (EU) No 473/2013, the “Gemeinschaftsdiagnose”, an association of several economic research institutes, is appointed as an independent body tasked with assessing and confirming the forecast released by the Federal Government. The ordinance will come into effect on 1 July 2018.’

Germany  165 Funds107 should not raise major concerns. Under the ultra vires review, the different funds have their foundation in the existing legal order. Hence, the competences in this area have not been exceeded. The identity review is only applicable if and when the EU measures planned in the reform incur further expenses in the German budget. Agreements at the EU level and commitments are possible, as they are undertaken voluntarily. They may require a decision from the Bundestag prior to the commitments. The incentive-based approach is not able to infringe on the rights of the German institutions themselves, especially in the case of the Bundestag. Of course, depending on the content of the commitment issues of the constitutionality, the commitment can be in question. This could be legally challenged before the Constitutional Court. As of now, the measures proposed through the European Semester do not raise these concerns.

iv.  European Monetary Fund (EMF) The European Monetary Fund108 shall be developed from the ESM. Most of its provisions and basic structure are similar to that of the ESM. The Constitutional Court already had the opportunity to decide on the ESM. The Court determined it to be constitutional under the ultra vires and the identity reviews. However, despite the similarities, the decision does not translate completely to an EMF. Under the ultra vires review, there are major concerns whether the establishment of the EMF violates primary EU law. In particular, the legal basis for the EMF raises doubts.109 If the treaties in their current form do not allow for establishing the EMF, it may become a cause for legal challenges under the ultra vires review. Faced with such challenges, the Constitutional Court could determine the integration of the institution into the German legal order to violate the German right to vote. If it does so, it will forbid a German contribution to it. Under these circumstances, a claim before the Constitutional Court is almost guaranteed if the initiative is executed. The Constitutional Court would direct the case to the CJEU. This means that the Constitutional Court could only declare the violation of German constitutional law if the CJEU upholds the EMF. Hence, the decision of the Constitutional Court depends on the grounds given by the CJEU. The Constitutional Court has shown willingness to base its decision on the assessment of the CJEU. However, the competences of the European institutions seem to be exhausted. To predict whether the Constitutional Court would disagree with the CJEU is not easy. The decision could also be influenced by non-legal factors. The institution itself would have to stand the test of the identity review. The changed majority does not affect Germany’s position inside the EMF in comparison to the ESM, as Germany keeps its de facto and, constitutionally demanded, veto power on all major decisions and could block decisions, which would lead to the loss of said veto.

107 European Commission, COM (2017)826 Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006. 108 European Commission, COM (2017)827 Proposal for a Council Regulation on the establishment of the European Monetary Fund (2017). 109 The academic service of the Bundestag (wissenschaftlicher Dienst) denies the feasibility of the EMF under the current treaties, Deutscher Bundestag, Az.: PE 6–3000–05/18, at www.bundestag.de/blob/540620/fd5452fcb475651bee1ea5e8ada8a544/pe-6-05-18-pdf-data.pdf.

166  Stefan Korioth, Jonas Marx The strengthened involvement of the European Parliament would not increase the influence the national parliaments will keep. Therefore, the Bundestag’s influence has to be maintained through German legislation. On a national level, the decisions of the German representative would be dependent on a prior decision of the Bundestag to secure the budgetary responsibility, as the procedure should be consistent with the precedent procedure the Constitutional Court developed for the ESM.

v.  European Automatic Macro-Economic Stabilisation Function There are different attempts to address macro-economic instability within the EU and in particular in the Eurozone.110 They aim to ease the financial pressure off Member States suffering from asymmetric shocks. Under the limits of the Constitutional Court, the feasibility is decided within two review standards of the Constitutional Court. One concern lies within a possible breach of the no bail-out clause and, in a more general sense, the transformation into a transfer Union via permanent financial transfers. Legally, the source of financial funds used for the stabilising function is essential. As long as it is retrieved from the (maybe increased) EU budget and is founded in the Treaties, its constitutionality will not be in question. If a special fund is set up and directly funded out of contributions of Member States, it instead becomes a distribution scheme.111 Furthermore, every investment in the struggling Member States can be marked as an incentive to maintain unsustainable national rules at the costs of others. This would change the structure of the Monetary Unions as well as making safeguards against these hazards necessary. Through the identity review, the decisive influence on the core competences of the national parliament is preserved. The stabilisation function could infringe on these in two aspects: the convergence of national policies necessary for the measure may strip away the parliaments’ rights, and the funding could violate the budgetary responsibility. a)  European Investment Protection Scheme An investment protection scheme allows for the backing of structural programmes of Member States. The German constitutional order does not prevent subsidies and funds provided by the EU. All of them include some kind of risk-sharing. This element creates special limits inside the German legal order, as the EU has already structural investment funds, which trigger similar questions. Of course, the design of the programme would be under strict scrutiny, especially concerning whether the Bundestag is capable of providing supervision of funds stemming from the German budget. b)  European Unemployment Reinsurance Scheme An Unemployment Reinsurance Scheme could ease the pressure off the Member States suffering from asymmetric shocks. The establishment of such a scheme would, however, run the risk of creating national reinsurance schemes which the Member States cannot sustain. Hence, creating such a mechanism would require the convergence of national laws to a certain degree. 110 European Commission, COM (2017)822 Communication on new budgetary instruments for a stable eurozone within the Union framework. 111 This redistribution takes place through the ESM, but the Constitutional Court considers the ESM an absolute exception, cmp. ECLI:DE:BVerfG:2014:rs20140318.2bvr139012 para 180.

Germany  167 The coordination of national labour market laws would not affect budgetary responsibility. However, depending on the depth of the coordination, it could affect ‘decisions on shaping living conditions in a social state’.112 This is another area the Constitutional Court identified as one of the core principles of the Constitution in its Lisbon ruling. As the Constitutional Court, and even the academic discourse, did not elaborate on this topic, this is uncharted territory. The provisions necessary to render such a mechanism possible should not touch upon the German unemployment schemes in such a way that the decisive influence of the Bundestag on its structure will be lost. The German social security agencies have their own budgets, but are regulated through legislation and therefore are not independent in their actions. Thus, the European legislation may not infringe on a constitutional demanded independence. c)  European Rainy-day Fund The instalment of a mandatory rainy-day fund at the EU level has the potential to stir up resistance in the German legal discourse. To provide funding, which is ultimately spent in different Member States, poses serious questions on its compliance with the EU Treaties. A violation of Article 125 TFEU would be reviewed as an ultra vires act, especially because of the Constitutional Court describing the EU as a stability union. Even if the mechanism is deemed to be cost-neutral on the budgets in the long run, it creates transfers between Member States on a regular basis. Hence, these aids could be considered a shift towards a ‘transfer union’. Under its doctrine, the Court would defer the case to the CJEU in this scenario. Whether the Constitutional Court would dissent from a decision of the CJEU upholding such a regulation is dependent on whether the CJEU can install safeguards that guarantee the budgetary responsibility for every member state. Another question is whether and how the obligation could be implemented into the national legal order. To be able to bind the budgetary legislator, the obligation has to take precedence over simple law. Therefore, implementation into the Constitution would be necessary. Regarding the Fiscal Compact, the Constitutional Court decided that the parliament can bind itself to strict budgetary rules. Hence, the national implementation of such a process would not infringe on the Bundestag’s budgetary responsibility. d)  Eurozone Fiscal Capacity The feasibility of creating a proper financial capacity under the current treaties is even more doubtful. There are various legal challenges that these plans have to overcome. As these changes would also redefine the structure of the EU, the breach of the Treaties would be considered substantial if the CJEU upholds the capacity without sufficient reasoning. The expansion of the European budget itself does not create a cause for major legal challenges.

vi.  European Minister of Economy and Finance In contrast to the other plans to reform the EMU, the suggestion of a European Minister of Economy and Finance113 is more self-contained. There are no decisions of the Constitutional Court regarding the European organisational measures. As long as the Minister does not gain



112 ECLI:DE:BVerfG:2010:rs20100706.2bvr266106, 113 European

para 252. Commission, COM (2017)823 Communication on a European Minister of Economy and Finance (2017).

168  Stefan Korioth, Jonas Marx competences, which have not yet been consolidated at the EU level, and are more representational in nature, it is even questionable whether an action against this measure would be admissible to the Constitutional Court. The claim that a European Minister would encumber the right to vote of the German people might not be sufficiently well-founded. The double-hatted structure should have no impact on constitutionality in Germany because it does not affect the German people’s right to vote. However, in the case that the Minister is given substantial powers, the absence of a competence or clear mandate to mass administrational power could pave the way for legal challenges leading to an ultra vires review, as this could contravene the treaties. Where a violation is found, the transgression of competence should not be considered substantial and blatant as the Honeywell decision demands it to be necessary for an ultra vires violation. The reviews aim more at the transfer of power than at the self-organisation at the EU level. The focus is on which powers are transferable and have been transferred. Therefore, the question of how power is organised is secondary.

vii.  Banking Union Insurance Mechanism The Constitutional Court decided that “neither the SSM Regulation nor the SRM Regulation amount to ultra vires acts, nor do they exceed the limits of the requirements set by the principle of democracy”114 But, there are constitutional concerns in regard to the risk-sharing element within the Single Resolution Fund (SRF).115 Furthermore, the European Deposit Insurance Scheme (EDIS) plans face the same issues in regard to the competence at the EU level.116 The proposed financial backstop for the Banking Union via the EMF117 depends, of course, on the assessment of the construction of the SRF. Given its feasibility at the EU level, it remains hard to predict whether the proposal would violate the limits as set up by the Constitutional Court. There are two decisions that could help to assess the legal limits of this kind of measure: the decision on bilateral loans and the EFSF, and the decision regarding ESM. The first decision allowed Germany to take part in the risk-sharing mechanism of limited scope. When engaging in such mechanisms, the parliament has a wide margin of appreciation concerning the risk undertaken by the participation.118 As the backstop of the SRF is capped at 60 billion euro, below the initial paid-in shares of the EMF, and the backstop would act as a last resort after a bail-in and the activation of the SRF itself, the risk that the German budget is facing a mechanism, which could lead to unforeseen liabilities, may be reasonably low. Therefore, the Bundestag may approve the financial means for that purpose. In contrast to this, the ESM decision qualifies the ESM as an exceptional emergency fund. Generally, all the rules established for the ESM should apply to a similarly-built EMF. This means Germany may not take on liabilities and financial expenditures without the prior consent of the Bundestag.119 This requirement at the national level makes it impossible to comply with 114 ECLI:DE:BVerfG:2019:rs20190730.2bvr168514, para 310. 115 Cmp. Alexander Kern, ‘European Banking Union’, 175ff. 116 Cmp. the comment by Ludger Schuknecht, chief economist of the German Federal Ministry of Finance at the time www.blogs.faz.net/fazit/2016/02/08/an-insurance-scheme-that-only-ensures-problems-7298/; Kaufhold, ‘Die Europäische Bankenunion’ 18, 31ff.; Doris Kolassa, ‘§138’ in H Schimansky, H J Bunte and H J Lwowski, Bankrechtshandbuch (München, Beck, 2017), para 14. 117 European Commission, COM (2017)827 Proposal for a Council Regulation on the establishment of the European Monetary Fund (2017). 118 ECLI:DE:BVerfG:2011:rs20110907.2bvr098710, para 130ff. 119 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012, para 163ff.

Germany  169 the conditions of the proposed backstop in its current design. The authorisation of the financial means would need to be obtained in advance. The sufficiency of this authorisation to uphold the high standards to preserve the budgetary autonomy is dependent on the stance the Constitutional Court takes on the Banking Union. If it considers the risk inside the system as low, the backstop triggers lesser control rights for the Bundestag. Otherwise, higher standards should apply, which are not met by the current design. ‘The larger the financial amount of the liability commitments or of commitment appropriations, the more effectively structured the German Bundestag’s rights to approve and to refuse and its right to monitor must be’.120

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law A.  Implementing EU Law The EU law and EMU-related measures are adopted if necessary through parliamentary laws. This can happen either on a federal or state (Länder) level. Which of the two will take action is decided based on the general division of competences between the federation and the states. As one piece of EU legislation may tackle different subjects under the Constitution, it may be necessary that both have to draft a law. Other than the parliamentary discussion, there is no political control of EU legislation such as referenda on any level. The majority of legislative competences regarding fiscal and general economic principles are kept within the federal realm of responsibility. In particular, Article 73(1) No 4 and 5 GG for currency-related matters and matters of customs and trade, and Article 74(1) No 11 GG for economic matters provide the federal competences. This is also the case for regulations regarding taxation. As the implementation of secondary EU law goes by the same distribution of competences, it is mostly handled by the federal legislative. It is only in regard to budgetary laws that states are afforded significant room to develop their own policies. That being said, the framework for budgetary rules is set up by the Grundgesetz, which imposes an obligation upon the Länder to maintain balanced budgets and meet the requirements of Article 126 TFEU. The Länder are not allowed to increase debts any more after 2020 (Article 109(3) GG).

B.  Maintaining Democratic Legitimation As mentioned before, one of the main reasons to draft Article 23 GG in its current form was to safeguard the rights of the parliament and the states, which had both lost competences in the process of EU integration. Thus, Article 23 GG aims to compensate for the losses of parliamentary power and improve the democratic legitimacy of EU acts.121 Sections 2 to 6 of Article 23 GG delineate the involvement of the Bundestag and the Bundesrat in European affairs. The way they deal with EU law takes into account that it is not just composed of a myriad of foreign policies. On the contrary, it is a convoluted and substantial framework with policies that have a significant impact on domestic affairs. In order to compensate for the loss of direct involvement in the



120 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012, 121 Wollenschläger,

‘Artikel 23‘, para 3.

para 163 ff.

170  Stefan Korioth, Jonas Marx legislative process, the Bundestag and Bundesrat are afforded exceptional rights of information and possibilities to make statements.

i.  Rights of the Bundestag In contrast to ordinary treaties, the parliament must be provided with information at a much earlier stage of negotiations. Article 23(2) GG states that in EU matters, ‘the Federal Government shall keep the Bundestag and the Bundesrat informed, comprehensively and at the earliest possible time’. EU matters are not just measures inside the EU but also other treaties outside of the European legal order, which are closely related to the EU.122 This applies for all measures adopted outside the EU legal order in the context of the EMU. The Bundestag must be updated on every development at the EU level, including progress in the Council of the EU. The more complex a matter is, the deeper it cuts into the responsibility of the Bundestag, and the more the information rights are granted to the Bundestag.123 The ‘earliest possible time’ is understood as – at least – the point in time, which allows the Bundestag to prepare a statement before the government takes part in decisions at the EU level.124 Therefore, it shall ensure that the Bundestag can use its rights effectively.125 The inflexibility of this process has been criticised as it creates a situation in which abstentions from Germany are legally incumbent at the EU level. (‘German vote’) According to Article 23(3) GG, the Bundestag is afforded the right to make statements regarding the actions of German representatives at the EU level. The government has to take these statements into account in its representative role in EU affairs. However, these statements are generally non-obligatory statements. The government may choose not to heed to these statements if there is a possibility of them interfering with the government’s policy on EU affairs. Article 45 GG postulates a mandatory committee regarding EU matters, which can be enabled to administrate the rights of the Bundestag on EU matters. The Constitutional Court emphasised and increased these rights for exceptional cases in its ESM judgment. Where the responsibility of integration, which was introduced to safeguard national parliamentary power, is concerned, the government is bound by the ­decision of the Parliament.126 This is reflected in the law on German participation in the ESM (ESM-Vertragsgesetz; ESMFinG). For this reason, the German law regarding the ESM stipulates that the representative at the Board of Governors of the ESM is ab initio bound by the will of the Bundestag. Conversely, the Bundestag must decide its intention before the representative can fulfil his/her duties (§ 4 ESMFinG). Through this measure, the parliament’s right to not have expenses imposed upon it without prior agreement remains untouched. Similar binding mandates are found in the law regarding the German Contribution to the EFSF (StabMechG), the law regarding the establishment of the ESM (ESM-Vertragsgesetz) and other provisions the law on the financial contribution to the ESM (ESMFinG). For the EFSF, the Constitutional Court decided that the Bundestag cannot delegate the power to authorise guarantees to a special committee if there is no established reason to do so.127



122 ECLI:DE:BVerfG:2012:es20120619.2bve000411,

para 100. para 117. 124 ECLI:DE:BVerfG:2012:es20120619.2bve000411, para 127. 125 ECLI:DE:BVerfG:2012:es20120619.2bve000411, par.a127. 126 ECLI:DE:BVerfG:2014:rs20140318.2bvr139012, para 162ff. 127 ECLI:DE:BVerfG:2012:es20120228.2bve000811, para 132ff. 123 ECLI:DE:BVerfG:2012:es20120619.2bve000411,

Germany  171 The German law enabling the participation in the EFSF was altered to simplify the participation of Germany in urgent and confidential cases of financial aid. To this end, a special committee was established consisting of as few members of parliament as possible to represent the proportion of parties in the Bundestag. The Constitutional Court decided that budgetary responsibility lies with the entire Bundestag.128 It is generally possible to devolve the rights of the Bundestag to a committee, but there has to be a prevalent reason to do so. Thus, a committee can merely be formed insofar as it is needed to fulfil this reason. The Constitutional Court found no reason important enough to justify a committee that is as small as possible.129 These practices are primary examples of the procedural hurdles further steps of integration will have to overcome in order to be successful. The more the explicit rights of the parliament are concerned, the more the German conduct at the EU level will be dependent on prior parliamentary decisions.

ii.  Rights of the Bundesrat As well as the involvement of the Bundestag, one of the major concerns addressed in the reform of Article 23 GG was the declining subjects decided on Länder-level. This effect revealed that there was no substantial representation of them at the EU level. Article 23(4)-(6) GG compensate this lost influence on these matters with participation on a national level. ‘The Bundesrat shall participate in the decision-making process of the Federation insofar as it would have been competent to do so in a comparable domestic matter, or insofar as the subject falls within the domestic competence of the Länder’. Therefore, paragraphs 5 and 6 tackle that subject. They provide a gradual system for the involvement of the Bundesrat as a representation of interests of the Länder in matters of the EU. Section 5 covers subjects that concern the interests of the Länder. When the subject lies within the competence of the federation but affects the Länder’s interests, the Bundesrat is given the same right as the Bundestag.130 This means that besides the early and substantive information, the federal government ought to also take into account the Bundesrat’s right to write statements. However, these are not substantial and binding. If the subject discussed at the EU level concerns mainly competences of the Länder, the Bundesrat could give statements, which are to ‘be given the greatest possible respect in determining the Federation’s position consistent with the responsibility of the Federation for the nation as a whole’. This means that the federal government has to adopt the position of the Bundesrat at EU level if that position aligns with the responsibility of the federation for the nation as a whole. If this is the case, it is specified by a law regulating the procedures for the involvement of the Bundesrat in European matters (EUZBLG). It is assumed that it is a matter of federal importance when the Bundesrat decides on the statement with a twothirds majority. Otherwise, the statements are considered not binding when the position of the Bundesrat conflicts with the view of the government in foreign, defence or integration policies.131 Furthermore, the government might deviate from the Bundesrat`s statement, if this position leads to increasing expenses and decreasing revenue in the federal budget.



128 ECLI:DE:BVerfG:2012:es20120228.2bve000811, 129 ECLI:DE:BVerfG:2012:es20120228.2bve000811, 130 Wollenschläger, 131 Wollenschläger,

‘Artikel 23‘, para 142. ‘Artikel 23‘, para 147.

para 132ff. para 144.

172  Stefan Korioth, Jonas Marx Lastly, in matters of education, culture and broadcasting, for which the Länder holds the exclusive legislative competences, the Bundesrat sends its representative to European institutions, who are bound by the decisions of the Bundesrat.

iii. Conclusion In Article 23(2)-(6) GG, the Bundestag and the Bundesrat have been granted special rights that impact at the EU level. The government, which usually leads the process on foreign affairs, has to give the chance of participation before actions can be taken at the EU level. As already pointed out, the federal legislators hold most competences regarding the relevant matters in the EMU area. Therefore, the participation of the Bundesrat will be no major hurdle. However, the increasing integration could trigger more binding resolutions for representatives at the EU level. Accordingly, the process of the participation of German legislative bodies increasingly constrains the capacity to act rapidly at the EU level.

C.  Protocol of Subsidiaries Article 23(1a) GG regulates the possibility of subsidiarity objections and proceedings for the Bundestag and the Bundesrat. Usually, the Bundestag as a whole carries out the subsidiarity objections in accordance with § 93c of the rules of procedure inside the Bundestag. However, this decision can be devolved upon the committee of European affairs. Article 23(1a) GG s­ tipulates the involvement of at least one-fourth of its members to initiate proceedings to the CJEU. German authorities have not taken action at the CJEU under these conditions. However, there were a number of complaints based on Article 6 Protocol of subsidiarity.132

D.  Enforcement through the Courts The Constitutional Court monopolised the right to execute the constitutional review of the implementation of EU law.133 Therefore, the conflicts surround the aforementioned decisions of the Constitutional Court. As confirmed by the Constitutional Court, the regular courts have to enforce EU law, even if it contradicts German law. However, the EU legal order is not understood to stand on top of the hierarchy of laws in Germany. Whereas domestic law, which violates laws of higher rank, especially the Grundgesetz, is nullified, a violation of EU law does not make the law void. EU law has merely a priority of application (Anwendungsvorrang), meaning that if a domestic law contradicts EU law, it shall not be applied in the specific case. That makes it possible to obey EU regulations even when they contradict provisions that are considered elementary by the Constitution. This is described as Europeanisation of German administration law.134 The margins of discretion the German administration have to be used in a way that ensures the effet utile of EU law, even against the legally established protection of trust.135 The primacy of the CJEU when interpreting EU law as demanded by Costa/ENEL, is generally accepted. The German Courts 132 Wollenschläger, ‘Artikel 23‘, para 106. 133 ECLI:DE:BVerfG:2009:es20090630.2bve000208, para 240. 134 Streinz, ‘Vollzug europäischen Rechts durch deutsche Organe’, §218 para 23ff. 135 See significant case for Germany Rheinland-Pfalz/Alcan, ECLI:EU:C:1997:163; 8:23041998U3C15.97; ECLI:DE:BVerfG:2000:rk20000217.2bvr121098.

ECLI:DE:BVerwG:199

Germany  173 use the preliminary procedure of Article 267 TFEU and apply the law according to the decisions at the EU level.136 The supreme courts fulfil their duty to submit mandatory cases to the CJEU.137 The German courts’ willingness to do so can be considered above average.138 If German Courts fail to submit mandatory cases, the Constitutional Court considers this as a violation of Article 101(2) GG, which guarantees everybody the right to the lawful judge. In principle, the Constitutional Court regards the CJEU as the proper institution to interpret EU law. Thus, every citizen can appeal to the Constitutional Court in case a regular court arbitrarily fails to submit the cases.139 All in all, it can be said that the regular courts can integrate and execute EU law inside the domestic legal order.140

V.  Resulting Relationship between EMU-related Law and National Law According to many in Europe, Germany and especially the Constitutional Court are seen as troublemakers for a united Europe. The Court’s stance on the EU can be considered to emphasise nationality over integration and, therefore, a hindrance in the ever-growing European integration. The constitutional and legal analysis shows a more nuanced picture. Germany is in the geopolitical centre of the EU. The German Constitution contains strong safeguards the sustained participation in the EU. In its application, the German legal order has formed a positive relationship towards EU law. The central provision for the relationship between EU law and domestic law is Article 23 GG. This article calls for the openness towards international cooperation and European integration. Openness towards the EU means that German institutions have to respect EU law.141 German law has to be interpreted in a way that avoids a breach of EU law.142 The domestic courts – including the Constitutional Court – use the preliminary process under Article 267 TFEU. The primacy of EU law is accepted for the most part. The main area of collision between the legal systems is at the constitutional level. As already discussed, the Constitutional Court assigns the Bundestag the responsibility of integration. This leads to restrictions in introducing EU acts in Germany. Therefore, the introduction of new EU acts, both in primary and secondary law, will be scrutinised on number and scope. Germany frequently creates legal hurdles for innovation of European rules and the communisation of standards. As one of the mightiest courts in Europe, the Federal Constitutional Court has adopted a doctrine heavily criticised for its domestic-orientated stance on Europe. The critics see the Court’s view as a reflection of doctrines, which make postulations of the EU developed specifically on the basis of the German Constitution.143 However, from another perspective, the reviews are designed to deepen the legal integration of the EU. 136 Alina Berger, Anwendungsvorrang und nationale Verfassungsgerichte (Tübingen, Mohr Siebeck, 2016) 108ff. 137 Ibid, 110. 138 Ibid, 109. 139 This is in line with its usual scope of review in domestic cases. 140 Berger, Anwendungsvorrang und nationale Verfassungsgerichte, 111. 141 ECLI:DE:BVerfG:2010:rs20100706.2bvr266106, para 56ff; ECLI:DE:BVerfG:2011:rs20110907.2bvr098710, para 108ff. 142 ECLI:DE:BVerfG:2010:fs20101012.2bvf000107, para 133; Karen Kaiser, Isabel Schübel-Pfister, in: Emmeneger/ Wiedmann (ed), Linien der Rechtsprechung des Bundesverfassungsgerichts, /Schübel-Pfister, Isabel, ‘Der ungeschriebene Verfassungsgrundsatz der Europarechtsfreundlichkeit’ in S Emmeneger, A Wiedmann (eds), Linien der Rechtsprechung des Bundesverfassungsgerichts (Berlin, Degruyter, 2011) 545, 566. 143 Daniel Halberstam, Christoph Möllers, ‘The German Constitutional Court says “Ja zu Deutschland!”’ (2009) 10, German Law Journal, 1241, 1248.

174  Stefan Korioth, Jonas Marx The European debt crisis led to a situation in which political solutions have exhausted the legal framework and have evolved outside the EU, thus circumventing the formalised EU provisions. From the point of view, the Constitutional Court historically has taken, this process of politicisation has to create opposition. In this spirit, the judgments of the Constitutional Courts could be understood as an attempt to deepen the constitutional ties of European institutions and intensify the cooperation between the Courts in Europe. The decisions create pressure to root the intended measures in the treaties and the consent of the Member States. The decisions ensure the voices of national parliaments are heard and respected at the EU level. The Court`s intention in its judgments and especially in the submissions to the CJEU is certainly the growing juridification of European institutions. As it was its mission to develop a dense network of constitutional legal rules for Germany, it now seeks to create a similar constitutional order at the EU level.

References Alina Berger, Anwendungsvorrang und nationale Verfassungsgerichte (Tübingen, Mohr Siebeck, 2016). Monica Claes and Jan-Herman Reestman, ‘The Protection of National Constitutional Identity and the Limits of European Integration at the Occasion of the Gauweiler Case’ (2015) 16 German Law Journal, 917. Justin Collings, Democracy`s Guardians – A History of the German Federal Constitutional Court 1951–2001 (Oxford, Oxford University Press, 2015). Paul Craig and M Markakis, ‘Gauweiler and the legality of Outright Monetary Transactions’(2016) 41 European Law Review 4. Philipp Dann, ‘Verfassungsgerichtliche Kontrolle gesetzgeberischer Rationalität‘ (2010) 49, Der Staat, 630ff. Hans-Georg Dederer, ‘Die Grenzen des Vorrangs des Unionsrechts’ (2014) 69 JuristenZeitung, 313. Horst Dreier, ‘Artikel 20 (Demokratie)’ in H Dreier (ed), Grundgesetzkommentar Vol 2, (Tübingen, Mohr Siebeck, 2015). Dieter Grimm, ‘Identität und Wandel – das Grundgesetz 1949 und heute’ (2009) 37, Leviathan, 603–616. Ulrich Häde, ‘Artikel 88’ in W Kahl, C Waldhoff and C Walter (eds), Bonner Kommentar zum Grundgesetz, Vol. 17 (Karlsruhe, Müller, 2019). Daniel Halberstam and Christoph Möllers, ‘The German Constitutional Court says “Ja zu Deutschland!”’ (2009) 10, German Law Journal, 1241. Roman Herzog, ‘Das Bundesverfassungsgericht im Prozess der deutschen Einigung‘ in J Burmeister (ed), Germania restituta (Köln, Heymann, 1993), 61. Peter M Huber, ‘Europäische Verfassungs- und Rechtsstaatlichkeit in Bedrängnis‘ (2017) 56, Der Staat, 389. Matthias Jestaedt, ‘Warum in der Ferne schweifen, wenn der Massstab liegt so nah?’ (2009) 48, Der Staat, 497. Matthias Jestaedt, ‘Wer Verfassungsrecht sät, wird Verfassungsrechtsprechung ernten‘ in M Jestaedt, C Möllers, O Lepsius and C Schönberger (eds), Das entgrenzte Gericht (Berlin, Suhrkamp, 2011) 77. Karen Kaiser and Isabel Schübel-Pfister, ‘Der ungeschriebene Verfassungsgrundsatz der Europare chtsfreundlichkeit’ in S Emmenegger and A Wiedmann (eds), Linien der Rechtsprechung des Bundesver fassungsgerichts (Berlin, Degruyter, 2011) 545. Ann-Katrin Kaufhold, ‘Die Europäische Bankenunion – vollendet unvollendet? Eine Zwischenbilanz’ (2017) 18 Zeitschrift für Gesetzgebung, 18. Alexander Kern, ‘European Banking Union: A Legal and Institutional Analysis of the Single Supervisory Mechanism and the Single Resolution Mechanism’ (2015) 40 European Law Review, 154. Doris Kolassa, ‘§138’ in H Schimansky, H J Bunte, H J Lwowski, Bankrechts-Handbuch (München, Beck, 2017). Franz Möller and Martin Limpert, ‘Die Parlamentarisierung der politischen. Willensbildung in europäischen Angelegenheiten‘ (2013), Zeitschrift für Gesetzgebung, 44. Martin Nettesheim, ‘Kompetenzdenken als Legitimationsdenken‘ (2014) 69 JuristenZeitung, 585. Klaus Schlaich and Stefan Korioth, Das Bundesverfassungsgericht (München, Beck, 2018). Ludger Schlief and Bernd Schulte, ‘Anmerkungen zur innerstaatlichen Umsetzung des Fiskalvertrages‘ (2013) Zeitschrift für Gesetzgebung, 121.

Germany  175 Bernhard Schlink, ‘Die Entthronung der Staatsrechtswissenschaft durch die Verfassungsgerichtsbarkeit‘ (1989) 28 Der Staat 161. Christoph Schönberger, ‘Die Europäische Union zwischen “Demokratiedefizit” und Bundesstaatsverbot‘ (2009) 48 Der Staat 535. Dolf Sternberger, Verfassungspatriotismus, (Frankfurt a. M. Insel, 1990). Rudolf Streinz, ‘Artikel 24’ in M Sachs (ed), Grundgesetz (München, Beck, 2018). Rudolf Streinz, ‘Vollzug von europäischen Rechts durch deutsche Organe’ in J Isensee and P Kirchhof (eds), Handbuch des Staatsrechts X, (Karlsruhe, Müller, 2004), §218. Fabian Wittreck, ‘Artikel 70-74‘ in H Dreier (ed), Grundgesetzkommentar Vol 2, (Tübingen, Mohr Siebeck, 2015). Ferdinand Wollenschläger, ‘Artikel 23‘ in H Dreier (ed), Grundgesetzkommentar Vol 2, (Tübingen, Mohr Siebeck, 2015).

176

7 Estonia ANDRES TUPITS

Abstract: The Constitution of the Republic of Estonia Amendment Act caused legal and political disputes before, during and after its adoption at the 2003 referendum. Combined with the ‘EU law integrated constitutional interpretation’ by the Estonian Supreme Court, there is uncertainty whether a letter of the Estonian Constitution still constitutes law or should be set aside and EU law should apply only. The enhancement of the Economic and Monetary Union (EMU) has raised legal issues to a new level. The author describes the main characteristics of the national constitutional system, assesses the constitutional foundations of Estonia’s EMU membership and addresses matters that have arisen in the course of implementation of EMU and related law. Key words: European law, Economic and Monetary Union, constitutional law, EU law integrated constitutional interpretation.

I.  Main Characteristics of the National Constitutional System Estonia was proclaimed an independent republic on 24 February 1918. It reclaimed its independence on 20 August 1991 in parallel with the collapse of the Soviet Union (USSR). Throughout the republic’s centennial history, Estonia has had four Constitutions: 1. 1920–33; 2. 1934–38; 3. 1938–40 (1992);1 4. 1992–present. The preparation for the 1992 Constitution did not trigger significantly wide debate in the society (apart from legal scolars and the politicians). It is unclear whether the general public considered the matter too legalistic, or whether there was a general assumption idealising the 1938 Constitution that only needed to be adjusted to fit the society emerging from Soviet rule and, therefore, not worthy of a broader debate.

1 One should bear in mind that the Soviet-era (1940–41; 1944–91) constitutions are not regarded as part of Estonian constitutional heritage.

178  Andres Tupits The current Estonian Constitution consists of three separate legal instruments, which are commonly referred to as ‘Acts’. The First Act2 was adopted by a referendum3 held on 28 June 1992, incorporating elements of the Constitutions of 1920 and 1938. The Second Act4 was entitled ‘The Constitution of the Republic of Estonia Implementation Act’ and was also passed at the same referendum, but has lost its significance due its provisional nature. The text of the First Act has been amended four times: 1. on 25 February 2003, when the term of office of local governments was extended from three years to four; 2. on 12 April 2007, when a reference to the protection of the Estonian language was added to the preamble; 3. on 13 April 2011, when the military command was reformed; 4. on 6 May 2015, when the voting age at local municipality elections was lowered from 18 to 16 years. The existence of the Third Act5 is due to Estonia’s EU membership. Estonia entered the EU on 1 May 2004 pursuant to the Accession Treaty.6 EU membership was preceded by a compulsory refendum on 14 September 2003 under Article 162 of the First Act. It was not possible to ratify the Accession Treaty by a referendum as Article 106 of the First Act prohibits the submission of issues related to the ratification and denunciation of international agreements to a referendum.7 At the same time, it was felt that EU membership needs to be reflected in the Estonian Constitution and that such change is significant enough to call for a referendum. The Third Act is entitled the ‘Constitution of the Republic of Estonia Amendment Act’, and it is remarkable in two respects: first, it is at the same level in the legislative hierarchy as the First Act; and, secondly, unlike any other amendment of the First Act, no provisions of the First Act were actually repealed or amended with the passage of the Third Act. Instead, Article 1 of the Third Act provides that ‘Estonia may belong to the EU in accordance with the fundamental principles of the Constitution of the Republic of Estonia’, while the First Act does not expressly contain a catalogue of such principles.8 Further, Article 2 of the 2 Eesti Vabariigi põhiseadus, RT 1992,26,349. Text in English is available at www.riigiteataja.ee/en/eli/521052015001/ consolide. 3 Adoption by referendum was the requirement under the 1938 Constitution, which has retained its significance nowadays. For example, under Art 56 of the First Act, the supreme power of the state is exercised by the people through citizens with the right to vote by electing the Riigikogu and through a referendum. Pursuant to Arts 162 to 166 of the First Act, Chapter I (General Provisions) and Chapter XV (Amendment of the Constitution) may only be amended by referendum, while the remainder of the Constitution may be amended either by a referendum, two successive memberships of the Riigikogu or by the Riigikogu alone by four-fifths majority. 4 Eesti Vabariigi põhiseaduse rakendamise seadus, RT 1992,26,350. Text in English is available at www.riigiteataja.ee/ en/eli/530102013012/consolide. 5 Eesti Vabariigi põhiseaduse täiendamise seadus, RT I 2003,64,429. Text in English is available at www.riigiteataja.ee/ en/eli/530102013005/consolide. 6 Act concerning the conditions of accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on which the EU is founded, [2003] OJ L236/33 (Accession Treaty). 7 Notably, none of the EU Treaties has been put on referendum precisely because of the prohibition under Art 106 of the First Act. The then Chancellor of Justice Allar Jõks recommended a referendum to approve the Treaty establishing a Constitution for Europe, see Allar Jõks, ‘Rahvahääletust ei ole vaja karta’ Postimees (Tallinn, 28 April 2005), which was refused by the Riigikogu. See Ero Liivik, ‘Referendum in the Estonian Constitution: Historical and Comparative Constitutional Aspects’ (2011) 17 XVIII Juridica International 24. 8 One could presume that the principles referred to could be contained either in Chapter I (General Provisions), or Chapter II (Fundamental Rights, Freedoms and Duties), or Chapter III (The People) or be found throughout the First Act, for example in Chapter VIII (Finance and the National Budget) or Chapter IX (Foreign Relations and International

Estonia  179 Third Act sets forth that, ‘As of Estonia’s accession to the European Union, the Constitution of the Republic of Estonia [ie the First Act] applies taking account of the rights and obligations arising from the Accession Treaty’, which can be understood as a requirement that the First Act and the EU Treaties have to be applied in conjunction. As will be explained later on, among the obligations placed on Estonia by the Accession Treaty is an obligation to participate in Economic and Monetary Union (EMU).9 As the Third Act can be amended only by referendum, it has been suggested that in case the nature of the EU should alter significantly and contradict the fundamental principles of the First Act, the response to such change can only be addressed through a referendum.10 Before and after its passage, the Third Act was the subject of fierce debate in Estonian legal circles, both in terms of its interpretation and also in terms of the legality of its very existence. The then Estonian Chancellor of Justice, Mr Allar Jõks, was of the opinion that the Third Act is legally unclear and that its implementation had not met the expectations prevailing at the time it was drafted.11 This view was shared by other recognised legal practitioners.12 On the other hand, the opinion was also voiced that it is unnecessary to make a specific reference to membership of the EU and the procedures arising from it in the First Act as the possible interpretations of the Third Act include all the constitutional questions which could surface upon accession to the EU.13 In practice, the Supreme Court applies the ‘EU law integrated constitutional interpretation’, which eliminates any conflict between the Constitution or any other national act and EU law as only constitutional provisions that are in accordance with EU law may be applied.14 This interpretation has been well understood and accepted by national lower courts.15 The roots for such interpretation are likely to lie from the period where Estonia, as an EU candidate country, had to approximate its national laws to EU law, including ‘judicial harmonisation’.16 A broad reference to Treaties) or possibly be extended beyond the text of the First Act, eg the principle of legitimate expectation. In a broader context, Ernits proposes the following catalogue of fundamental principles that arise from the Estonian Constitution: human dignity, democracy, rule of law, social justice and national self-determination, see Madis Ernits, Põhiõigused, demokraatia, rahvusriik, (Tartu, Tartu Ülikooli Kirjastus, 2011) 34. 9 At the time of accession, the status was that of a Member State with a derogation, see Art 4 of the Accession Treaty. 10 See Liivik, ‘Referendum in the Estonian Constitution: Historical and Comparative Constitutional Aspects’, 22. 11 See Jõks, ‘Rahvahääletust ei ole vaja karta’ (in Estonian). 12 Such as Uno Lõhmus, ‘Mida teha põhiseadusega’ (2005) 2 Juridica 75. Similar views were expressed earlier, when the draft was debated publicly, by Rait Maruste, Anneli Albi, ‘Eesti Vabariigi põhiseadus Euroopa Liidu õiguskorras’ (2003) 1 Juridica 3; Anneli Albi et al, ‘Ühispöördumine seoses nn. Põhiseaduse Kolmanda akti riigiõiguslike probleemidega’ (2002) 5 Juridica 352; Anneli Albi, ‘Põhiseaduse muutmine Euroopa Liitu astumiseks’ (2001) 9 Juridica 603; Anneli Albi, ‘Euroliit ja kaasaegne suveräänsus’ (2000) 3 Juridica 160 (in Estonian). 13 For example, Urmas Reinsalu, ‘Kas vajame uut põhiseadust?’ (2005) 3 Juridica 147; earlier Julia Laffranque, ‘Eesti põhiseaduse ja Euroopa õiguse kooselu’ (2003) 3 Juridica 180; Julia Laffranque, Ülle Madise, Kalle Merusk, Jüri Põld, ja Märt Rask, ‘Põhiseaduse täiendamise seaduse eelnõust’ (2002) 8 Juridica 563 (in Estonian). 14 See Tatjana Evas, ‘Judicial reception of EU law in Estonia’ in B de Witte, J A Mayoral, U Jaremba, M Wind, K Podstawa (eds), National Courts and EU Law (Cheltenham, Edward Elgar, 2016) 146, 155. According to this doctrine, only that part of the Constitution shall be applied which is not contrary to EU law: ‘To find out which part of the Constitution is applicable, it has to be interpreted in conjunction with the EU law, which became binding for Estonia through the Accession Treaty. At that, only that part of the Constitution is applicable, which is in conformity with the EU law or which regulates the relationships that are not regulated by the EU law’, see Opinion 3-4-1-3-06, ECLI:EE:RK:2006:3.4.1.3.06.195, para 16. 15 See Evas, ‘Judicial reception of EU law in Estonia’, 166. 16 For broader analysis see Darinka Piqani, ‘The Role of National Constitutional Courts in Issues of Compliance’ in M Cremona (ed), Compliance and the Enforcement of EU Law (Oxford, Oxford University Press, 2018) 132, 149–55, elaborating on the pre-accession approximation of laws, referring, among others to Albi (Anneli Albi, EU Enlargement and the Constitutions of Central and Eastern Europe (Cambridge, Cambridge University Press, 2005). Piqani suggests that those constitutional courts which showed a high level of sensitivity towards the obligation of approximation of laws and practices in the pre-accession stage seem to have most successfully managed to accommodate full application of EU law after accession to the EU.

180  Andres Tupits EU law was made as early as 30 September 1994,17 and the Supreme Court has maintained such openness towards EU law since then. Probably the first EU law integrated constitutional interpretation case occurred relatively shortly after the accession, when on 19 April 2005 the Supreme Court issued its Decision 3-4-1-1-05, recalling the primacy of the EU law.18 Judicial control on EMU matters has been exercised by the Supreme Court in its Opinion 3-4-1-3-0619 as well as Decision 3-4-1-6-12,20 which will be elaborated in detail below. One should bear in mind that while the Supreme Court applies the ‘EU law integrated constitutional interpretation’, strong dissenting opinions by the Supreme Court judges are annexed to the main document of the rulings.21 The critics of this approach claim that the Supreme Court has not fulfilled its role as the guardian of the Constitution in applying the EU law integrated constitutional interpretation in a situation where the Third Act did not amend any provision of the First Act, subsequently leading to the conclusion that in case of any conflict, the text of the Constitution should be amended in accordance with its procedural amendment rules.22 Such opinions are countered by an argument that any such change to the Constitution would contradict the Third Act and open the door for precisely all those legal problems that the passage of the Constitution Amendment Act was meant to prevent.23 In more specific cases, such as in the case of Article 111 of the First Act that was considered to be an obstacle on the path of adoption of the euro, it was claimed that it was unnecessary and dangerous to amend the Constitution because of adoption of the euro.24 Therefore, the constitutional culture in Estonia positions supranational law within the national constitutional order. The benefit of this approach is that if a conflict between national law and supranational law occurs, the winner of such a conflict is pre-determined (possibly also in cases where the EU law provision is ultra vires). The shortcoming of such a system is that while the text of the First Act is independence inspired and sovereignty-minded with emphasis on the power

17 Decision III-4/1-5/94 of the Constitutional Review Chamber of the Supreme Court of 30 September 1994 on the review of the constitutionality of § 25(3) of the Law of Property Act Implementation Act to the extent that it repeals of § 30(2) of the Farm Act of the Estonian SSR, ECLI:EE:RK:1994:3.4.1.5.94.191. 18 Decision 3-4-1-1-05 of the Constitutional Review Chamber of the Supreme Court of 1 March 2005 on the petition of the Chancellor of Justice to declare § 701 of the Local Government Council Election Act and § 1(1), the first sentence of § 5(1) and § 6(2) of the Political Parties Act partly unconstitutional, ECLI:EE:RK:2005:3.4.1.1.05.141. 19 Opinion 3-4-1-3-06 of the Constitutional Review Chamber of the Supreme Court of 11 May 2006 on the interpretation of § 111 of the Constitution, ECLI:EE:RK:2006:3.4.1.3.06.195. 20 Decision 3-4-1-6-12 upon request of the Chancellor of Justice to declare Art 4(4) of the Treaty establishing the European Stability Mechanism signed on 2 February 2012 in Brussels to be in conflict with the Constitution, ECLI:E E:RK:2012:3.4.1.6.12.357. 21 Opinion 3-4-1-3-06 has two (Judge Villu Kõve, Judge Eerik Kergandberg), while Decision 3-4-1-6-12 has 10 dissenting opinions, see n 59. 22 For example Lauri Mälksoo, ‘Eesti suveräänsus 1988–2008’, H Kalmo, M Luts-Sootak (eds), Iganenud või igavene? Tekste kaasaegsest suveräänsusest (Tartu, Tartu Ülikooli Kirjastus, 2010) 132, 147; Ernits, ‘Põhiõigused, demokraatia, rahvusriik’ (2011) 37–70; and Uno Lõhmus, ‘Põhiseaduse muutmine ja muudatused põhiseaduses’ (2011) I Juridica, 12, 23–25. With regard to Art 111 of the First Act, see also Andres Tupits, Legal framework for the Eurosystem national central bank: Analysis of the Eurosystem central bank statutes (Saarbrücken, AV Akademikverlag GmbH & Co. KG, 2012), 226–32. For more recent and general reflections on the issues related to the Third Act, see Madis Ernits, Andra Laurand, ‘Kolmanda akti tõus ja langus’ (2017) 1 Juridica 3; Hent Kalmo, ‘Euroopa Liidu õiguse ootamatud mõjud’ (2015) II 7 1 Juridica (in Estonian). 23 At the time of drafting the Third Act it was widely held that if one stipulation of the Constitution (ie the First Act) were opened for change, this would spill over to other parts of it. This could have led to an unwanted constitutional revision on a bigger scale. The existence of three amendments to the First Act (2007, 2011 and 2017) following the adoption of the Third Act probably indicates that such fears have not really materialised. 24 See Ülle Madise, ‘Euro käibeletulek ei sõltu põhiseaduse muudatustest’ (Tallinn, Eesti Päevaleht, 7 September 2005) (in Estonian).

Estonia  181 of people and the balance of powers between state institutions, the initiative to launch, steer and end a debate in EU affairs is vested with the government, leaving the Estonian parliament (the Riigikogu) in a somewhat reactive role.25 The existence of the Third Act has also diluted the legal certainty of the First Act, as the latter has to be read and interpreted together with the EU Treaties and the relevant case law by the CJEU in order to determine whether a particular provision of the First Act is in force or not. In comparison, the EU law integrated constitutional interpretation is in sharp contrast with the treament of international agremeents under Article 123 of the First Act, whereby the latter are deemed to be hierarcically below the Constitution but above laws or other legislation. The Estonian legal system belongs to the continental European legal tradition, the Roman-Germanic family, and follows the classic division into private, public, and criminal law. According to the Constitution, legislative power lies with the Riigikogu. This consists of 101 members, elected by Estonian citizens for a term of four years. Executive power lies with the government of the Republic, which implements the country’s domestic and foreign policy and organises implementation of legislation. While the president is the head of state, he (or she) plays a primarily representative role. Governmental authority is exercised solely pursuant to the Constitution and laws which are in conformity therewith. Only published laws may have binding force. Generally recognised principles and rules of international law are an inseparable part of the Estonian legal system.26 Estonia’s court system consists of three instances: • county and administrative courts are the first instance courts; • circuit courts are the courts of the second instance, located in Tallinn and Tartu; and • the Supreme Court, which is also the constitutional court, is the third instance. County courts and administrative courts adjudicate matters at first instance, such as civil, criminal and misdemeanour matters or administrative matters. Appeals against decisions of courts of first instance shall be heard by courts of second instance. Courts of appeal are courts of second instance (sometimes also called circuit courts or district courts).

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments In Estonia, EMU membership is covered by a general membership clause in the Third Act. Article 2 of the Third Act sets forth that, ‘[a]s of Estonia’s accession to the EU, the Constitution of the Republic of Estonia [ie, the First Act] applies taking account of the rights and obligations arising from the Accession Treaty.’ Further obligations arise from the Treaty on Stability, Co-ordination and Governance, which entered into force on 18 November 201227 and the Treaty Establishing the European Stability Mechanism (ESM Treaty), which entered into force

25 A similar pattern can also be observed in other areas. Janar Holm, Auditor General of Estonia has pointed out that regarding state budget, the Riigikogu does not address any strategic issues and the ability of Riigikogu members to propose any changes to the budget is impaired in reality (Janar Holm, ‘Riigi vara kasutamise ja säilimisega seotud ­probleemidest’ (14 November 2018), www.riigikontroll.ee). 26 Art 3 of the First Act. 27 Majandus- ja rahaliidu stabiilsuse, koordineerimise ja juhtimise lepingu ratifitseerimise seadus, RT II, 08.11.2012, 3 (fiskaalkokkulepe).

182  Andres Tupits on 15 September 2012.28 While the TSCG did not raise any constitutional debate, the ESM Treaty raised serious concerns, which will be addressed in section III.B. Several articles in the First Act address EMU-related issues as well as the duties and obligations of the Riigikogu, the government and the national central bank.29 Pursuant to the principle of parliamentary democracy, it is the competence of the Riigikogu to plan budgetary revenue and expenditure and to decide on the assumption of financial ­obligations, which can be found in several provisions of the First Act. Besides, under Article 106 of the First Act, issues regarding, among others, the budget, taxation, financial obligations of the national government, ratification and denunciation of international agreements may not be submitted to a referendum. First, pursuant to Article 65 point 6 of the First Act, the Riigikogu passes the national budget and approves the report on its implementation. This function is supported by Article 115(1) of the First Act, pursuant to which the Riigikogu passes an act for each year that contains a budget setting out all items of government revenue and expenditure. Secondly, Articles 65 point 10 and 121 point 4 of the First Act give rise to the competence of the Riigikogu to decide on the ­assumption of financial obligations of the state. Article 65 point 10 of the First Act provides that the Riigikogu, acting on a proposal of the government, decides whether to authorise government borrowing or the assumption of financial obligations. Under Article 121 point 4 of the First Act, the Riigikogu ratifies or denounces treaties of the Republic of Estonia by which the latter assumes military or financial obligations. Thirdly, the State [Framework] Budget Act30 implements Article 117 of the First Act, which stipulates that the procedure for the drafting and passage of the national budget is provided by law, and is one of the constitutional laws, ie it is expressly mentioned in Article 104 of the First Act as a law which may be passed and amended only by an absolute majority of the members of the Riigikogu and cannot be enacted, amended or repealed by a presidential decree. In the hierarchy of Estonian laws, constitutional laws rank next after the Constitutional Acts. The State [Framework] Budget Act contains the requirement for the structural budget position of the general government sector to be either in balance or in surplus which is applicable to both the Riigikogu and the government in the planning and implementation of yearly budgets. Although not expressly deriving from the Constitution, the State [Framework] Budget Act also contains provisions for the governance of the Stabilisation Reserve Fund, which was created as early as 1997 with an initial size equal to 45.2 million euros and is managed by the Ministry of Finance. Finally, Article 113 of the First Act contains a requirement that national taxes, encumbrances, fees, fines and compulsory insurance payments shall be established by law, which means that introduction of new monetary obligations is the Riigikogu’s prerogative. A law introducing a new monetary obligation does not have to be a constitutional law. However, such law cannot be put to a referendum under Article 106 of the First Act. A further distinction from the ordinary laws is that a presidental decree cannot be used under Article 110 of the First Act to introduce new monetary obligations. 28 Euroopa stabiilsusmehhanismi asutamislepingu ratifitseerimise ja rakendamise seadus, RT II, 14.09.2012, 1. 29 From June 1940 the central bank of Estonia, Eesti Pank, ceased to exist and a local branch of the USSR State Bank used its premises in Tallinn. The re-established central bank started to operate on 1 January 1990 and co-existed with the Estonian Republic Office of the USSR State Bank until the latter’s merger with Eesti Pank on 1 January 1992, after Estonia had regained its independence on 20 August 1991. See Kristīne Drēviņa, Kęstutis Laurinavičius, Andres Tupits, ‘Legal and institutional aspects of the currency changeover following the restoration of the independence of the Baltic States’ (2007) No 5 ECB Legal Working Paper Series, 10. 30 Riigieelarve seadus, RT I, 13.03.2014, 2. Text in English is available at www.riigiteataja.ee.

Estonia  183 Article 87 point 5 of the First Act authorises the government to prepare draft laws to enact the national budget and to introduce them at the Riigikogu, to administer implementation of the national budget and the subsequent presentation of reports to the Riigikogu. The government operates under the Law on Government of the Republic of Estonia, which is a constitutional law as set forth in Article 104 of the First Act. Article 111 of the First Act provides that Eesti Pank has the sole right to issue Estonian currency and that it must regulate the currency in circulation and ensure the stability of the national currency. Article 112 of the First Act provides that Eesti Pank must operate pursuant to its governing law and must report to Parliament. On the basis of Article 112, the Riigikogu adopted the Law on Eesti Pank on 18 May 1993.31 The Eesti Pank Statute is a constitutional law, also mentioned in Article 104 of the First Act. Historically, the Estonian kroon (EEK) was introduced and pegged to the German mark under the currency board system on 20 June 1992, with the exchange rate set at one German mark to eight krooni.32 In 1999, the euro replaced the German mark as the anchor currency. The EEK joined the Exchange Rate Mechanism (ERM II) on 28 June 2004, and the central exchange rate was set at EUR 1 to EEK 15.6466. Full membership of the EMU was assumed and the derogation in favour of Estonia referred to in Article 4 of the 2003 Act of Accession was abrogated with effect from 1 January 2011.33 A currency board is, by definition, a special type of fixed exchange rate arrangement that is based on a strong and explicit legislative commitment to a fixed exchange rate, together with the requirement that the domestic currency should only be issued against foreign exchange reserves.34 Eesti Pank’s obligation under Article 111 to ‘ensure the stability of the national currency’ may be interpreted as a reference to the currency board arrangement in addition to the Law on Security for Estonian Kroon35 (repealed following the adoption of the euro), which established the legal framework for the currency board arrangement in Estonia. In the hiererarchy of legal intruments, the Law on Security for the Estonian Kroon used to be a regular law positioned underneath the constitutional acts and constitutional laws. As the currency board arrangement is rule-based, it is not affected by political pressures. For example the government cannot print money or borrow from the central bank to fund its budget deficit, effectively forcing application of the balanced budget rule for government expenditures even when no such formal rule exists. Inflation may nevertheless be accelerated by private

31 Eesti Panga seadus, RT I 1993, 28, 498. Text in English is available at www.riigiteataja.ee. 32 See Drēviņa, Laurinavičius, Tupits, ‘Legal and institutional aspects of the currency changeover following the restoration of the independence of the Baltic States’, 8. Note that the currency reform in Estonia took place before the adoption of the two constitutional acts at the referendum. 33 See Council Decision 2010/416/EU of 13 July 2010 in accordance with Art 140(2) of the Treaty on the adoption by Estonia of the euro on 1 January 2011, [2010] OJ L196/24. 34 See Drēviņa, Laurinavičius, Tupits, ‘Legal and institutional aspects of the currency changeover following the ­restoration of the independence of the Baltic States’, 8. In June 1940, after the annexation of Estonia by the USSR, Eesti Pank was nationalised and all of its assets were supposed to have been transferred to the USSR. In fact, the foreign reserves deposited in the United Kingdom, with the Bank of International Settlements (BIS) and with the Federal Reserve System of the USA were retained, and the USSR only succeeded in acquiring the assets that had been deposited in Sweden. The foreign exchange reserves for the Estonian kroon were mainly made up of the pre-war gold deposits returned to Estonia by Western banks shortly before the monetary reform – a total of 11.3 tonnes of gold was received in 1992–93 either in gold or in the form of monetary compensation. Before the return of the gold, the central bank of Estonia, Eesti Pank, did not have any foreign reserve assets and the collateral for the Estonian kroon was Estonia’s state-owned forests. In January 1992 Eesti Pank’s balance sheet showed 150 thousand cubic metres of timber ready for felling. These assets were formally removed from its balance sheet only in June 1997. 35 Eesti Vabariigi seadus Eesti krooni tagamise kohta, RT 1992, 21, 300.

184  Andres Tupits borrowing that Eesti Pank under currency board arrangement cannot really control.36 Thus, a currency board arrangement does not enable any active measures for maintaining price stability, which is why the Eurosystem has made it clear that under no circumstances could a currency board substitute for the required ERM II membership37 as an ‘antechamber’ to the euro. However, it could constitute an additional and unilateral commitment within ERM II.38

III.  Constitutional Obstacles to EMU Integration In Estonia, constitutional obstacles to EMU integration relate to the competences of Eesti Pank after the adoption of the euro, ie, transfer of sovereignity to the supranational level under the EU Treaties and the issue of controlling national sovereignity in the context of financial crises. The EMU reform proposals have not yet passed the constitutionality test in Estonia.

A.  Central Bank Competence Regarding the competences of Eesti Pank, it is recalled that following the adoption of the Third Act, Article 111 of the First Act remained unaltered as far as the Eesti Pank’s sole right to issue Estonian currency and the power to regulate currency circulation and uphold the stability of the national currency was concerned. Interpreting Article 111 of the First Act in conjunction with Article 2 of the Third Act could lead to so many different outcomes that the principle of legal certainty would be undermined. Some examples of possible interpretations are: 1. the single currency, the euro, shall be the Estonian currency; 2. the ‘Estonian currency’ means only the Estonian kroon, ie the currency used before adoption of the euro; 3. with the entry into force of the Third Act, Article 111 of the First Act has been rendered invalid. Pursuant to Article 2 of the Third Act, the Republic of Estonia has no legal grounds for declining to adopt the euro, as a result of which it is no longer possible to apply Article 111 of the First Act following its EU accession. In this interpretation, the only parts of the Constitution which are valid are those which either conform to or are not regulated by Union law. Therefore, the logical conclusion must be that Article 111 of the First Act was rendered invalid when the Third Act was passed.39 In order to achieve legal clarity, as was suggested in the Convergence Reports of 2004 by the ECB and the Commission,40 the Estonian Parliament, in the context of preparing amendments

36 See Urmas Sepp, Raoul Lättemäe, Matti Randveer, The History and Sustainability of the CBA in Estonia, (Tallinn, Eesti Pank, 2002) 330. 37 Participation in the Exchange Rate Mechanism (ERM) is voluntary for non-eurozone Member States. However, as membership of ERM II is one of the convergence criteria for the eventual adoption of the euro, non-eurozone Member States are expected to join the mechanism at some stage. 38 European Central Bank, ‘Policy position of the Governing Council of the ECB on exchange rate issues relating to the acceding countries’, www.ecb.europa.eu, (18 December 2003). 39 See Tupits, Legal framework for the Eurosystem national central bank: Analysis of the Eurosystem central bank statutes (2012) 226–30. 40 According to the Commission, Art 111 of the Constitution is in conflict with EU law; the opinion does not mention the Third Act (European Commission, Convergence report 2004 COM(2004) 690 final, ec.europa.eu/economy_finance,

Estonia  185 to the Eesti Pank Statute, requested a constitutional review by the Supreme Court of the draft law amending the National Central Bank Act. On 11 May 2006 the Estonian Supreme Court declared Article 111 of the Constitution to be inapplicable41 and thus provided legal clarity on the matter. The Supreme Court found that the Draft Law Amending the Law on Eesti Pank, which made preparatory arrangements for the eventual adoption of the euro, was compatible with the Constitution. In addition, the Supreme Court directly addressed the position of the Third Act in the context of supremacy of EU law. It stated that the text of the First Act should be read together with the Third Act and that those parts of the Constitution that are incompatible with EU law shall not be applied. In doing so, the Supreme Court granted in its Opinion 3-4-1-3-06 unconditional supremacy to EU law,42 thus representing the Supreme Court’s stance in the ‘EU law integrated constitutional interpretation’ and following its earlier decisions.

B.  ESM Treaty Constitutionality The background of the constitutional dispute in Decision 3-4-1-6-1243 is different and concerns the competence of the Riigikogu to plan budgetary revenue and expenditure and to decide on the assumption of financial obligations. On 16 and 17 December 2010, the EU Member States agreed to establish a permanent stability mechanism for the eurozone. At the same meeting the EU Member States also agreed on an amendment of Article 136 TFEU. The ESM Treaty was signed by the Estonian Finance Minister on 11 July 2011, and its amended version was signed by the Estonian representative in Brussels on 2 February 2012. On 12 March 2012 the Chancellor of Justice referred to the Estonian Supreme Court to declare the emergency voting procedure (Article 4 (4) of the ESM Treaty) to be in conflict with the Constitution. The Chancellor of Justice was of the opinion that it interferes with the principle of parliamentary democracy and the budgetary powers of the Riigikogu; the latter being one of the most central elements of the parliamentary organisation of state. The Chancellor of Justice also pointed out that budgetary-political choices are within the Riigikogu’s competence, within which the legislature has wide discretion,44 and that the Riigikogu shall have an option to affect through the government conditions of a financial assistance agreement (under the ESM Treaty).45 The government46 disagreed, arguing that the ESM Treaty needs to be assessed in the context of Estonia’s EU membership and the amended Article 136 TFEU, which is why limitations on the the Riigikogu’s budgetary powers are justified. The government suggested that financial stability was the primary reason for signing the ESM Treaty and in the absence of financial stability, the

accessed 7 December 2018, 12). The ECB, however, refers in its assessment to both the First Act and the Third Act, but urged that Art 111 should be amended with regard to legal certainty, see European Central Bank, ‘Convergence Report 2004’, www.ecb.int, accessed 7 December 2018, 221. 41 See n 19. 42 See Anneli Albi, ‘Supremacy of EC Law in the New Member States: Bringing Parliaments into the Equation of ‘Co-operative Constitutionalism’’ (2007) No 3 European Constitutional Law Review 25, 45. 43 See n 20. 44 Decision 3-4-1-6-12, para 9. 45 Ibid, para 11. 46 The government’s position was argued by the Ministry of Justice, Ministry of Finance, Ministry of Foreign Affairs and Eesti Pank.

186  Andres Tupits functioning of the state and the protection of constitutional principles may be at stake.47 The government was also of the opinion that, as launching an emergency voting procedure is dependent on the inititive of the European Central Bank and the Commission, those EU institutions should be trusted.48 The position of the Government was that a result of the European integration shall be ‘shared sovereignty’, which will trigger changes in the internal or national competences of the Member States’ authorities.49 The Supreme Court considered the ESM Treaty to be a treaty for the purposes of Article 123(1) of the First Act50 and not part of EU law which would require the application of the Third Act51 and assessed the compliance of its Article 4(4) with the Constitution. Therefore, the ‘EU law integrated constitutional interpretation’ was not applied. However, the Supreme Court did have interesting arguments in combination with a proportionality test to dismiss the request of the Chancellor of Justice. The Supreme Court issued a future-looking warning in the decision that probably indicates a departure from the ‘EU law integrated constitutional interpretation’. First, the Supreme Court found that the financial competence of the Riigikogu ties the latter to the obligation to make decisions concerning financial obligations as well as budget policy decisions; the state must use public assets in a manner which enables to guarantee the protection of fundamental rights and freedoms.52 Secondly, the Supreme Court considered the competence of the Riigikogu to be closely related to the state’s financial sovereignity and the principles of democracy, rule of law and the principle that governmental authority shall be exercised solely pursuant to the Constitution and laws which are in conformity therewith.53 Thirdly, the Supreme Court held that while Article 4(4) of the ESM Treaty interferes with the financial competence of the Riigikogu,54 such interference is legitimate and proportionate. It is legitimate because the economic and financial sustainability of the eurozone is contained in the constitutional values of Estonia as of the adoption of the euro,55 which needs to be protected through the stability mechanism established by the ESM Treaty.56 It is proportionate because Article 4(4) of the ESM Treaty provides for an appropriate, necessary and reasonable measure for the achievement of eurozone financial stability.57 Finally, bearing mind the prospect of the ESM Treaty being integrated into EU law, the Supreme Court also held, among others, that if the EU Treaties were to be amended or a new founding treaty is entered into and brings about more extensive delegation of Estonia’s competences to the EU as well as more extensive interference of the Constitution, the consent of the people of Estonia is required and possibly the Constitution needs to be amended.58 It is too early

47 Ibid, para 36. 48 Ibid, para 44. 49 Ibid, para 46. 50 Ibid, para 109. 51 Ibid, para 110. 52 Ibid, para 139. 53 Ibid, para 141. 54 Ibid, paras 149, 150 and 153. One should bear in mind that decisions are taken under Art 4(4) of the ESM Treaty by qualified majority of 85%, therefore the Riigikogu’s binding orders (if any) to the representative of Estonia (0.1860%) may not affect the decisions of the ESM. 55 Decision 3-4-1-6-12, para 163. 56 Ibid, paras 165–69 and 208. 57 Ibid, paras 196–203, 208–10. 58 Ibid, para 223.

Estonia  187 to tell if this warning indicates that the Supreme Court is reconsidering its ‘EU law integrated constitutional interpretation’. The Estonian Supreme Court dismissed the application in its Decision 3-4-1-6-12 on 12 July 2012 with 10 out of 19 (full court) judges submitting dissenting opinions.59 Judges Henn Jõks, Ott Järvesaar, Eerik Kergandberg, Lea Kivi, Ants Kull and Lea Laarmaa were of the opinion that it should have been assessed whether the contested emergency procedure, which leaves Estonia out of the decision-making in the ESM, outweighs the sovereignity of Estonia, including the financial competence of the Riigikogu and the principle that that governmental authority shall be exercised solely pursuant to the Constitution and laws which are in conformity therewith. They also criticised the government for the lack of ESM Treaty impact analysis and subsequently for the lack of sufficient reasoning of paragraphs 175, 200, 201 and 208. Together with Judge Tambet Tampuu they contested the proportionality test applied by the Supreme Court. Together with Judge Jüri Ilvest, they were of the opinion that the ESM Treaty could not be ratified without a prior referendum. They were joined by Judge Jaak Luik, who went even further and argued that the ESM Treaty concerns the fundamental principles of the Constitution and that its ratification will affect the functioning of the Constitution and that the Supreme Court did not have enough information about the substance of the matter.

C.  EMU Reform Proposals All of the above should be borne in mind when assessing draft rules to enhance fiscal discipline and structural reforms,60 the proposal for the European Monetary Fund (EMF),61 the communication on macroeconomic stabilisation mechanism for asymmetric economic shocks,62 the resolution on budgetary capacity for the eurozone,63 or the proposal for a European Minister of Economy and Finance.64 The current legal framework foresees neither EU direct taxation, EU debt instruments, nor (apart from Article 122(2) TFEU) autonomous budgetary means at the EU level to stabilise economies at the national level. Any introduction of such measures would call for a revision of the EU Treaties with regard to the competences of the EU and its Member States. 59 Nine judges (Henn Jõks, Ott Järvesaar, Eerik Kergandberg, Lea Kivi, Ant Kull, Lea Laarmaa, Tambet Tampuu, Jaak Luik and Jüri Ilvest) disagreed with the resolutive part of the decision while one judge (Villu Kõve) was of the view that the Legal Chancellor had no competence to submit the case to the Supreme Court, but agreed with the resolution of the Supreme Court. 60 European Commission, ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’, COM(2017) 824, Brussels, 6.12.2017; European Commission, ‘Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2017 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 as regards support to structural reforms in Member States’, COM(2017) 826, Brussels, 6.12.2017. 61 European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’, COM(2017) 827 Brussels, 6.12.2017. 62 European Commission, ‘Communication to the European Parliament, the European Council, the Council and the European Central Bank: new budgetary instruments for a stable eurozone within the Union framework’, COM(2017) 822 Brussels, 6.12.2017. 63 European Parliament, Resolution of 16 February 2017 on budgetary capacity for the eurozone (2015/2344(INI)). 64 European Commission, ‘Communication to the European Parliament, the European Council, the Council and the European Central Bank: a European Minister of Economy and Finance’, COM(2017) 823, Brussels, 6.12.2017.

188  Andres Tupits

i.  Fiscal Discipline and Structural Reforms The proposal for the Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States (COM(2017) 824) aims to ­integrate the substance of the TSCG into the EU legal framework. However, the proposed Directive will not replace the TSCG, and does not seem to diminish the risk of duplication and conflicts between intergovernmental arrangements and the framework under EU law unless the TSCG will cease to exist. As far as the EU fiscal framework is concerned, the proposed Directive appears to contain provisions that are similar to those in the ‘Six Pack’ or the ‘Two Pack’ and have already been implemented. From the substantial point of view, the requirement for a countryspecific numerical fiscal rule does not conflict with the budgetary competences of the Riigikogu. In Estonia the Eelarvenõukogu, or Fiscal Council, has been established with Eesti Pank65 and with all costs covered from the central bank budget, it meets all the formal requirements under Article 3(7) of the proposal. Compliance with Article 3(6), which sets forth that the budgetary authorities shall comply with the recommendations of the independent bodies or justify the decision not to comply with those recommendations is difficult to assess. Under its statute, Eelarvenõukogu issues opinions which are defined as ‘a position or recommendation to the public, Riigikogu and the Government’ and all such opinions are public.66 However, the Ministry of Finance does not have a public register stating its compliance or non-compliance with the opinions of the Eelarvenõukogu. It appears such assessment has been reflected in the Minister’s speech to the Riigikogu,67 but not in the core documentation, for example the Ministry of Finance’s explanatory letter to the 2019 Annual Budget.68 A proposal for a Regulation Proposal for amending Regulation (EU) No 1303/2013 (COM(2017) 826 final) would interfere with the financial competence of the Riigikogu,69 but a contractual agreement with the EU in itself would be constitutional. The limits for the content of such agreement would be drawn by the constitutional principles of human dignity, democracy, rule of law, social justice and national self-determination. The other issue is what could be the alternative – for a eurozone Member State, devaluation of the currency or stepping out of the eurozone are not viable options. Therefore, it has to introduce structural reforms to get its economy as well as public spending on firm grounds. A resulting limitation on the sovereign discretion on defining economic policies is not in itself unconstitutional. However, it is unclear whether such agreement or its conditions could be challenged in Estonian courts and if yes, on what grounds.

65 In Estonia, the central bank is not a budgetary authority. 66 Arts 3 and 10(2) of the Eelarvenõukogu Statute. This was adopted by the Eesti Pank Supervisory Board (Eelarvenõukogu põhikiri, kinnitatud Eesti Panga nõukogu 08.04.2014 otsusega nr. 3-2). The Eelarvenõukogu Statute as well as its opinions are available in English at www.eelarvenoukogu.ee. 67 For example, the following speeches in Estonian: (1) Rahandusministeerium, ‘Rahandusminister Toomas Tõniste kõne 2018. aasta riigieelarve eelnõu esimesel lugemisel Riigikogus, 18.10.2017’ www.rahandusministeerium.ee kasutatud 3. detsember 2018. a.; (2) Rahandusministeerium, ‘Rahandusminister Toomas Tõniste kõne Riigikogus 8. mail 2018 oluliselt tähtsa riikliku küsimuse riigi eelarvestrateegia 2019–2022 arutelul’ www.rahandusministeerium.ee, kasutatud 3. detsember 2018. a. 68 Rahandusministeerium, ‘2019. aasta riigieelarve seaduse eelnõu seletuskiri’ www.rahandusministeerium.ee, kasutatud 3. detsember 2018. a. 69 A contract between Estonia and the EU would be an international treaty under Art 123 of the First Act that requires ratification by the Riigikogu because Estonia would be assuming financial obligations under such agreement (Art 121 (4) of the First Act). Because of this nature, a referendum would be ruled out under Art 106 of the First Act.

Estonia  189

ii.  European Monetary Fund and Fiscal Backstop for Banking Union The creation of the EMF without replacing the ESM Treaty would risk duplication and conflicts between intergovernmental arrangements and the framework under EU law. When assessing the proposal for the EMF, COM(2017) 827, the first issue is whether a transformation of the ESM into the EU legal framework by a regulation represents a proper choice of procedure or a selection of applicable legal instruments. Probably it is neither, as the EMF will be created with competences previously not exercised by the EU institutions or bodies. Articles 2(3), 5(1) and 136(1) TFEU currently restrict the role of the EU in the area of economic policy to the adoption of coordinating measures (and surveillance of the eurozone budgetary discipline) while Article 136(3) TFEU authorises the eurozone Member States, not the EU, to establish a stability mechanism for the eurozone. As a rule, any conferral of new competences to the EU should be subject to the Article 48(2) TEU ordinary revision procedure. Although Article 352 TFEU has been mentioned as a possible legal basis for the EU to establish a stability mechanism,70 the CJEU did not elaborate on the competences of such a mechanism but concluded that no new competences will be conferred on the EU71 as the ESM Treaty was deemed to be outside EU law and ESM was neither an EU institution nor an EU body. Obviously, when the current ESM competences will be transferred to the EMF, this will amount to a conferral of new competences on the EU, which subsequently will call for an amendment of TFEU under the ordinary revision procedure in Article 48(2) TEU. Regarding the above, such conferral of competences to the EU is likely to trigger a referendum in Estonia. In its Decision 3-4-1-6-12 the Supreme Court also held, inter alia, that if the EU Treaties were to be amended or a new founding treaty is entered into and if it brings about more extensive delegation of Estonia’s competences to the EU and more extensive interference of the Constitution, the consent of the people of Estonia is required and possibly the Constitution needs to be amended.72 Following the ‘Meroni doctrine’,73 decision-making under Article 3 of the EMF proposal has been made subject to the Council’s approval (in its eurozone composition), which may be correct legally but is not adequate in addressing a governance issue. Bearing in mind that until recently the ESM Board of Governors and the Eurogroup membership overlapped, and assuming this will also apply in the future, one would question the practicality under the proposal of adopting a decision by the EMF board of governors which requires the subsequent approval of the Council in the eurozone composition, ie the Eurogroup. In emergency procedures, the Council may object to the EMF board of governors decision, in which case the Council may itself adopt a new decision or refer the matter back to the EMF board of governors, ie the same group of individuals subject to voting rules that are different than those of the Council.74 One can only wonder whether a Treaty change institutionalising the Eurogroup75 and granting it the powers of the EMF board of governors would have been easier than adopting in the future, presumably at the time of a financial crisis, decisions of the EMF and subsequently confirming those decisions in the Council in a speedy and efficient manner. 70 CJEU, Case C-370/12 Pringle, ECLI:EU:C:2012:756, para 67. 71 Ibid, paras 64–66, 71–76 and 155–69. 72 See n 58. 73 The Meroni doctrine relates to the extent to and conditions under which EU institutions may delegate their tasks to regulatory agencies. 74 Voting rights at the EMF board of governors may be suspended when the EMF member fails to pay any part of the amount due as long as such failure continues. Loss of voting rights at the Council may occur if a Member State fails to honour the EU values pursuant to Art 7 TEU. 75 Protocol (No 14) on the Eurogroup.

190  Andres Tupits Substantially, the impact of the EMF activities to national budgets would have the same constitutional issue – it interferes with the principle of parliamentary democracy and the budgetary powers of the Riigikogu, and Article 6 of the draft regulation adds a layer of transparency to national parliaments which did not exist before, not the power to control the decision-making at the EMF. For the latter, the Riigikogu is left with national procedures. A constitutional issue regarding the credit line or guarantees of EMF vis-à-vis the Single Resolution Board in itself would probably arise in connection with an interference with the financial competence of the Riigikogu. Bearing in mind Decision 3-4-1-6-12 and its subsequent limitations, it is arguable whether such interference is constitutional, both with regard to Estonia’s share in the ceiling under Article 22(2) of the EMF Statute or its increase under Article 22(4)(b). Of course, if the matter was to be referred to the Supreme Court, the latter might recognise such interference as legitimate because of an earlier judgment deciding that the economic and financial sustainability of the eurozone is part of the constitutional values of Estonia, a Member State whose currency is the euro.

iii.  European Macroeconomic Stabilisation Function and Euro Area Fiscal Capacity Estonia has been rather sceptical of the need for an EU fiscal capacity instrument for the absorption of large economic shocks, together with some other Member States,76 which is probably why the establishment of a European Investment Stabilisation Function77 has not received much attention. As an instrument on the basis of Article 175(3) TFEU, it is similar to any other ­cohesion policy tool supplemented by the eurozone Member States’ intergovernmental agreement78 to secure financing. However, the use of inter-governmental agreement to collect payments would leave such a tool outside EU law but within eurozone governance arrangement, which is likely to be subject to complex issues involving both EU law and national constitutional law. First, Article 125(1) TFEU continues to honour the principle that a Member State shall not be liable for or assume the commitments of another Member State, which shall be ‘without prejudice to mutual financial guarantees for the joint execution of a specific project’. The wording of Article 125(1) TFEU is suggesting that some sort of risk-sharing is possible, but it is limited to ‘joint execution of a specific project’. A combination of an EU law instrument based on Article 175(3) TFEU with an intergovenmental agreement falls within the criteria of Article 125(1) TFEU in so far as the recipient Member State remains responsible for its commitments to its creditors provided that the conditions attached to such assistance are such as to prompt that Member State to implement a sound budgetary policy.79 The legality of this side of the arrangement would leave one to presume that contributions from donor Member States to the Stabilisation Support Fund should also be legal. Secondly, with regard to Article 17(2) of the proposal for a European Investment Stabilisation Function, it should be noted that monetary income allocated to national central banks is, as the 76 Government Offices of Sweden (6 March 2018), ‘Finance ministers from Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, the Netherlands and Sweden underline their shared views and values in the discussion on the architecture of the EMU’, www.government.se. 77 European Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on the establishment of a European Investment Stabilisation Function’, COM(2018) 387, Brussels, 31.5.2018. 78 Draft Agreement on the Transfer of Contributions to the Stabilisation Support Fund, ec.europa.eu/commission, accessed 3 December 2018. 79 Art 125(1) TFEU has been elaborated in Case C-370/12, Pringle, ECLI:EU:C:2012:756, paras 135–37. In contrast, the article has been mentioned in Case C-62/14, Gauweiler, ECLI:EU:C:2015:400, para 101, but not elaborated in detail.

Estonia  191 name suggests, attributed to those national central banks and not to Member States, who are supposed to make the contribution. It is unclear how the financing will be worked out if there is no monetary income from the European Central Bank or when any of the national central banks would have either no or little profits to transfer to its respective Member State,80 or in the case of Estonia, the central bank profits are allocated to the national Stabilisation Reserve Fund pursuant to Article 71(2)(4) of the State [Framework] Budget Act. Bearing this in mind, the establishment of a eurozone ‘rainy day fund’, while there already exists a national one, would also raise competence issues. Thirdly, if the Estonian financing for the European Investment Stabilisation Function were to be drawn from other sources of income, because the central bank profits are by national law allocated elsewere, it might well interfere with the financial competence of the Riigikogu. In a similar fashion, proposals for eurozone fiscal capacity (covered by an EP Resolution, Communication on new budgetary instruments for a stable eurozone within the EU framework, proposals for a European Unemployment Reinsurance Scheme or for a eurozone ‘Rainy Day Fund’), appear to interfere with the financial competence of the Riigikogu and it is arguable whether such interference is legitimate without an appropriate amendment of the EU Treaties.

iv.  European Minister of Economy and Finance Regarding the idea of a European Minister of Economy and Finance, there appears to be no transfer of competences from the Member States to the EU. For allocating a member of the Comission to this position, only Protocol No 14 on the Eurogroup, annexed to the Treaties, needs to be amended (alternatively, its Article 2 needs to be differently interpreted and the Eurogroup working methods have to be amended). As such, this idea, if implemented, would not raise any constitutional concerns.

v.  Preparations So Far The Estonian government in general has not raised any constitutionality issues and tends to be rather supportive.81 At the same time its officials have revealed to standing committees of the Estonian Parliament (EU Affairs Committee (EUAC82), Finance Committee) that neither the establishment of the European Minister of Economy and Finance, nor the budget for the eurozone nor the transformation of the ESM into an EU body under a regulation are supported by the government.83 However, the officials have not provided any justification for the position, therefore it is not clear whether the decision of not giving support was made for legal or political reasons.

80 For more constructive criticism on the potential breach of central bank financial independence, please see Opinion of the European Central Bank (CON/2018/51) of 9 November 2018 on a proposal for a regulation on the establishment of a European Investment Stabilisation Function, www.ecb.europa.eu, accessed 3 December 2018. 81 Vabariigi Valitsus, Valitsuse 15. veebruari 2018.a. istungi kommenteeritud päevakord, punkt 4) Eesti seisukohad Euroopa majandus- ja rahaliidu süvendamise ettepanekute kohta, www.valitsus.ee, kasutatud 21. juulil 2018. a. 82 The primary task of the EUAC is to observe that the positions of the Riigikogu would take into account both the general context of the EU – political situation, relations and agreements between the Member States – and Estonia’s priorities in EU politics. 83 Riigikogu, Riigikogu Euroopa Liidu asjade komisjoni 9. märtsi 2018.a. istungi protokoll nr. 179, punkt 3 www.riigikogu.ee, kasutatud 21. juuli 2018. a., Riigikogu rahanduskomisjoni 6. märtsi 2018.a. istungi protokoll nr. 180, punkt 2 www.riigikogu.ee, kasutatud 21. juuli 2018. a.

192  Andres Tupits At the same time, it appears that Estonia supports ‘a supplementation’ of the Treaties to reflect the creation of the EMF,84 although no such Treaty change was submitted to any of the parliamentary committees. Both committees of the Riigikogu have expressed their support for the government’s stance. Ackwardly, some committee members who did not support the government claimed that their disagreement was based on the augmentation of EU competences at the expense of Member States’ sovereignty.85 The short assessment would lead to a conclusion that as long as the proposals and ideas can be accommodated within the existing Treaties’ framework, in light of Article 2 of the Third Act and the ‘EU law integrated constitutional interpretation’, such changes would be compatible with the Estonian Constitution.86 However, the history of dissenting opinions at the Estonian Supreme Court would lead to a conclusion that a constitutional debate may be triggered by any step deepening the EMU (no matter whether or not it includes an amendment of the Treaties), the outcome of which would be difficult to predict.

IV.  Constitutional Rules and Practice on Implementing EMU Related Law According to Evas, there is a clearly formulated position on the place of EU law in the national normative order. This is because EU law is considered to be an integral part of the Estonian constitutional order and the Constitution must always be interpreted and applied in consideration of the obligations following from EU law.87 The duties arising from the TSCG, including Articles 3(1), 4, 5 and 6, as well as from Council Directive 2011/85/EU, have been addressed by the State [Framework] Budget Act. As the balanced budget rule was applied in practice also before, due to the currency board arrangement, the new State Budget Act amends the preparatory process of annual budgets and specifies the roles and responsibilities of different institutions in this regard. The notable innovation has been the creation of the Eelarvenõukogu. There is no specific mode of participation in the national parliament and the government in the EMU decision-making. Like in any other EU-related issue, the government forwards the initiatives of the European Commission to the Board of the the Riigikogu, which, with its resolution, appoints one or several specialised committees to provide an opinion and submit this to the EUAC. In EMU-related matters, it is mostly the Finance Committee, that submits its opinion to EUAC, which then will form its position on behalf of the Riigikogu. Article 152 of the Riigikogu Rules of Procedure and Internal Rules Act stipulates that the government is obliged to adhere to the opinion of the Riigikogu and has to explain non-compliance at the earliest opportunity to the EUAC or the Foreign Affairs Committee.88 For the national parliaments, the legal challenges are derived from the fact that relations with the Commission and the decision-making in the Council or in the ECB are trusted with the executive part of the government, while the legislator is left with ‘pre-agreed’ option or options by the time the matter is presented to the national parliament.



84 See

n 83.

86 For

relevant criticism, see Madis Ernits, ‘Millestki ürgsest ja kargest ning autoriteediröövist’ (2015) II Juridica 77. Evas, ‘Judicial reception of EU law in Estonia’, 157. author is aware of no major conflicts in this regard.

85 Ibid. 87 See

88 The

Estonia  193 Secondary EU legisation can be implemented by laws adopted by the Riigikogu or by ministerial decrees, as the case may be. The number of requests by the Estonian courts for preliminary rulings to the CJEU originating from Estonia is rather low compared to the overall number of cases decided by those courts.89

V.  Resulting Relationship between EMU Related Law and National Law The rapid development of EMU-related law has resulted in the Estonian Supreme Court issuing a warning regarding further delegations of national competences to the supranational level, suggesting that in such case the referendum is imminent possibly with the amendment of the First Act. Decision 3-4-1-6-12 developed in detail the position of the Estonian Supreme Court on the relationship between EU law and national constitutional law. The Estonian Supreme Court is likely to hold the ‘unconditional primacy of EU law’ as elaborated in its Opinion 3-4-1-3-06. However, with the adoption and implementation of the EMU reform proposals and the uncertainty regarding possible constitutional disputes, it is difficult to predict whether the Estonian Supreme Court will remain within the spirit of Opinion 3-4-1-3-06 or will elaborate further the stance taken in its Decision 3-4-1-6-12 by imposing limitations to the path of deeper integration.

References A Albi, EU Enlargement and the Constitutions of Central and Eastern Europe (Cambridge, Cambridge University Press, 2005). A Albi, ‘Euroliit ja kaasaegne suveräänsus’ (2000) 3 Juridica 160. A Albi, ‘Põhiseaduse muutmine Euroopa Liitu astumiseks’ (2001) 9 Juridica 603. A Albi, ‘Supremacy of EC Law in the New Member States: Bringing Parliaments into the Equation of ‘Co-operative Constitutionalism’’ (2007) 3 European Constitutional Law Review 25. A Albi, Michael Gallagher, et al, ‘Ühispöördumine seoses nn. Põhiseaduse Kolmanda akti riigiõiguslike probleemidega’ (2002) 5 Juridica 352. K Drēviņa, K Laurinavičius, A Tupits, ‘Legal and institutional aspects of the currency changeover following the restoration of the independence of the Baltic States’ (2007) 5 ECB Legal Working Paper Series. Esimese ja teise astme kohtute menetlusstatistika 2017.a. koondandmed, www.kohus.ee, kasutatud 12. detsember 2018. a. M Ernits, ‘Millestki ürgsest ja kargest ning autoriteediröövist’ (2015) II Juridica 77. M Ernits, Põhiõigused, demokraatia, rahvusriik (Tartu, Tartu Ülikooli Kirjastus, 2011) 34. M Ernits, A Laurand, ‘Kolmanda akti tõus ja langus’ (2017) 1 Juridica 3. European Central Bank, ‘Convergence Report 2004’, www.ecb.int, accessed 7 December 2018, 221. European Central Bank (18 December 2003), ‘Policy position of the Governing Council of the ECB on exchange rate issues relating to the acceding countries’, www.ecb.europa.eu. European Commission, Convergence report 2004 COM(2004) 690, www.ec.europa.eu/economy_finance. T Evas, ‘Judicial reception of EU law in Estonia’, in B de Witte, J A. Mayoral, U Jaremba, M Wind, K Podstawa (ed), National Courts and EU Law (Cheltenham, Edward Elgar, 2016) 146.

89 As of 15 December 2018, InfoCuria, the database of the CJEU, listed 27 references for preliminary rulings from Estonia since its accession to the EU. In comparison, the courts of first and second instance received in 2017 respectively 30,179 and 2,874 civil cases; 17,071 and 2,132 criminal cases; 2,986 and 1,555 administrative cases (Esimese ja teise astme kohtute menetlusstatistika 2017.a. koondandmed, www.kohus.ee, kasutatud 12. detsember 2018. a.).

194  Andres Tupits Government Offices of Sweden (6 March 2018), ‘Finance ministers from Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, the Netherlands and Sweden underline their shared views and values in the discussion on the architecture of the EMU’, www.government.se. J Holm, ‘Riigi vara kasutamise ja säilimisega seotud probleemidest’ (14 November 2018), www.riigikontroll.ee. A Jõks, ‘Rahvahääletust ei ole vaja karta’ Postimees (Tallinn, 28 April 2005). H Kalmo, ‘Euroopa Liidu õiguse ootamatud mõjud’ (2015) II Juridica 71. J Laffranque, ‘Eesti põhiseaduse ja Euroopa õiguse kooselu’ (2003) 3 Juridica 180. J Laffranque, Ü Madise, K Merusk, J Põld, M Rask, ‘Põhiseaduse täiendamise seaduse eelnõust’ (2002) 8 Juridica 53. E Liivik, ‘Referendum in the Estonian Constitution: Historical and Comparative Constitutional Aspects’ (2011) XVIII Juridica International 17. U Lõhmus, ‘Mida teha põhiseadusega’ (2005) 2 Juridica 75. U Lõhmus, ‘Põhiseaduse muutmine ja muudatused põhiseaduses’ (2011) I Juridica 12. Ü Madise, ‘Euro käibeletulek ei sõltu põhiseaduse muudatustest’ (Tallinn, Eesti Päevaleht, 7 September 2005. R Maruste, A Albi, ‘Eesti Vabariigi põhiseadus Euroopa Liidu õiguskorras’ (2003) 1 Juridica 3. L Mälksoo, ‘Eesti suveräänsus 1988-2008’ in H Kalmo, M Luts-Sootak, Iganenud või igavene? Tekste kaasaegsest suveräänsusest (Tartu, Tartu Ülikooli Kirjastus, 2010) 132. D Piqani, ‘The Role of National Constitutional Courts in Issues of Compliance’, in M Cremona (ed), Compliance and the Enforcement of EU Law (Oxford, Oxford University Press, 2018) 132. Rahandusministeerium, ‘2019. aasta riigieelarve seaduse eelnõu seletuskiri’ www.rahandusministeerium.ee, kasutatud 3 December 2018. Rahandusministeerium, ‘Rahandusminister Toomas Tõniste kõne 2018. aasta riigieelarve eelnõu esimesel lugemisel Riigikogus, 18.10.2017’ www.rahandusministeerium.ee kasutatud 3 December 2018. Rahandusministeerium,‘Rahandusminister Toomas Tõniste kõne Riigikogus 8. mail 2018 oluliselt tähtsa riikliku küsimuse riigi eelarvestrateegia 2019–2022 arutelul’ www.rahandusministeerium.ee, kasutatud 3 December 2018. U Reinsalu, ‘Kas vajame uut põhiseadust?’ (2005) 3 Juridica 147. Riigikogu, Riigikogu Euroopa Liidu asjade komisjoni 9. märtsi 2018. a. istungi protokoll nr. 179, punkt 3 www.riigikogu.ee, kasutatud 21 July 2018. Riigikogu, Riigikogu rahanduskomisjoni 6. märtsi 2018.a. istungi protokoll nr. 180, punkt 2 www.riigikogu. ee, kasutatud 21 July 2018. U Sepp, R Lättemäe, M Randveer, The History and Sustainability of the CBA in Estonia (Tallinn, Eesti Pank, 2002). A Tupits, Legal framework for the Eurosystem national central bank: Analysis of the Eurosystem central bank statutes (Saarbrücken, AV Akademikverlag GmbH & Co. KG, 2012). Vabariigi Valitsus, Valitsuse 15. veebruari 2018.a. istungi kommenteeritud päevakord, punkt 4) Eesti seisukohad Euroopa majandus- ja rahaliidu süvendamise ettepanekute kohta, www.valitsus.ee, kasutatud 21 July 2018.

8 Ireland GAVIN BARRETT

Abstract: This chapter starts by looking at the main characteristics of the Irish constitutional system, Ireland’s constitutional culture and the significance of the Constitution in the Irish legal system. The methods of interpreting constitutional law are considered and the question of whether the courts generally scrutinise economic issues. The chapter then focuses on the constitutional foundations of Irish EMU membership, examining both coverage by the Constitution’s ‘general membership clause’ and specific provisions on EMU membership. The major decisions of the Irish courts relevant to EMU matters are discussed. The impact of the banking and sovereign debt crises on Irish law was considerable. The significant crisis-related developments are considered here and the Irish rules governing EMU-related instruments outside the EU legal order, such as the ESM and the TSCG, are considered, as is the Supreme Court decision in Pringle, significant in this context. Possible constitutional obstacles to EMU integration are also considered. The constitutional provisions which might be violated by an EMU-related reform falling outside the confines of both the Article 29.4.5° and 29.4.10° authorisations to join the EU/TSCG; and the Article 29.4.6° and 29.4.10° immunity clauses are reflected upon, including the Article 5 sovereignty clause, still a factor even after the Pringle case moderated its impact. Finally, Irish constitutional rules and practice on implementing EMU-related law are examined, including the limited extent to which control is exercised over Irish government ministers in the Council of the EU and the Irish parliament’s participation in adopting Eurozone-related legislation at European level and the effect of court rulings. Key words: Constitution, EMU, referendum, budgetary discipline, euro, Ireland, Europe Clause, statutory instrument, Crotty, Pringle, Supreme Court.

I.  Main Characteristics of National Constitutional System, and Constitutional Culture A.  Ireland’s Constitutional System Including its Judiciary1 Ireland is a unitary state and a constitutional democracy with a parliamentary system of government and a bicameral parliament. Its constitutional system is mainly based on the 1937 Bunreacht na hÉireann (Constitution). 1 See more generally G Barrett ‘Ireland’ in S Griller et al (eds), National Constitutions and EU Integration (Oxford, Hart Publishing, 2021).

196  Gavin Barrett Ireland gained its current constitutional status gradually, gaining effective independence as the Irish Free State in 1922 under the Anglo-Irish Treaty.2 The new Free State had its own Constitution, enacted by the Irish revolutionary parliament, the Dáil (sitting as a constituent assembly) in October 1922.3 In 1937, however, a new Constitution was adopted, dropping all the references to the Crown, Empire, UK and the Anglo-Irish Treaty found in its 1922 predecessor. It has remained in force ever since. Article 4 declared the name of the state to be ‘Éire, or in the English language, Ireland’. Article 5 asserted ‘Ireland is a sovereign, independent, democratic state’. After parliamentary approval (with minor amendments), the new Constitution was approved by referendum on 1 July 1937. Ireland remained in the Commonwealth yet stayed neutral in World War II, then became a republic under the Republic of Ireland Act 1948, leaving the Commonwealth. Section 2 of the 1948 Act declared ‘that the description of the State shall be the Republic of Ireland’.4 Section 3 provided that ‘the President, on the authority and on the advice of the government’s, may exercise the executive power or any executive function of the State in or in connection with its external relations’, in effect upgrading the president to a head of state. Ireland’s national parliament is known as the Oireachtas.5 Dáil Éireann (the lower House) has 166 members, directly elected at least every five years via proportional representation by single transferable vote. Seanad Éireann (the upper House or Senate) has 60 members. Forty-three of these are elected by fewer than 1000 elected local authority councillors from large panels of candidates supposedly representing culture, agriculture and fisheries, organised labour, industry and commerce, and public administration. Six are elected by the graduates of some Irish universities. Another 11 are nominated by the Taoiseach (prime minister). This combination of a (legislatively) narrowlydefined Seanad electorate dominated by political parties, and the large number of Seanad members nominated by the Taoiseach gives the Dáil the upper hand in parliament. The Dáil itself, however, is dominated by the executive via party political control. The then government’s plans to abolish the Seanad failed in October 2013, when a referendum proposal was rejected by the electorate. A constituent element of the Oireachtas is Ireland’s directly-elected president, who acts as the ceremonial head of the state, with only a minimal executive role. The president exercises most of his/her functions on the advice of the government.6 There are however a few instances where the president may exercise his/her own discretion. The most prominent is the Article 26 power to refer a Bill to the Supreme Court for a ruling on its constitutionality and the discretion to refuse to dissolve the Dáil on the advice of a Taoiseach who has ceased to retain a Dáil majority.7 Ireland has retained the common law legal system introduced by its former British rulers. Its court system employs an adversarial approach.8 There is a unified court structure, no separate system of administrative courts (along French lines) and no separate Constitutional Court (as in Germany). The Superior Courts consist of a High Court, with full original jurisdiction, a Court of Appeal (the creation of which was 2 The so-called ‘Articles of Agreement for a Treaty between Great Britain and Ireland’. 3 As the Constitution of the Irish Free State (Saorstát Eireann) Act, 1922. It was given effect to in UK law by the Irish Free State Constitution Act, 1922. 4 Cf however, Art 4 of the Constitution, according to which the name of the state is still Éire, or in the English language, Ireland. 5 Art 15.1.1° of the Constitution. Art 15.1.2° states the Oireachtas consists of the president and two Houses ‘viz.: a House of Representatives to be called Dáil Éireann and a Senate to be called Seanad Éireann.’ 6 See eg, Arts 13.1.3°, 13.2.1° and Art 13.11 of the Constitution. 7 Art 13.2.2°. Additional functions can, however, be conferred on the president by law. 8 See Art 34.

Ireland  197 authorised in a referendum held in October 20139) and a Supreme Court. Constitutional review of laws is permitted to the Superior Courts.10 There is no procedure analogous to the German Verfassungsbeschwerde, but a law’s constitutionality can be challenged in normal review proceedings brought by a litigant who can show standing. Ratification of Treaties and/or their implementation into national law can and has been challenged before the Irish Courts eg, in Crotty v An Taoiseach11 and Pringle v Government of Ireland and Others.12 The Courts have taken a liberal approach to standing requirements in challenges concerning EU treaties.13 Courts of local and limited jurisdiction also exist, including the non-jury District Court and the (higher-ranking) Circuit Court.14 Both try criminal and civil cases, are geographically limited in their jurisdiction and have an upper financial limit on the claims they may hear. There are also some specialist tribunals such as the Labour Court and the Equality Tribunal.

B.  Significance of the Constitution in the Irish Legal System and its Importance for the Polity Ireland’s Constitution, providing as it does for judicial review, provides the biggest contrast between the Irish legal system and the UK’s. The Constitution is ‘strong’: it provides expressly for fundamental rights. Since the 1960s, it has been used by the Irish courts as the source of many implied or ‘unenumerated’ constitutional rights.15 Executive actions and statutes may be declared void for having infringed the Constitution in litigation brought by private parties. Since the end of a transition period in 1941, changes to the Constitution have required the passage of a Bill through the Oireachtas, then that Bills approval in a popular vote.16 Including the 1937 vote on the Constitution itself, there have been 42 constitutional referendums, 31 of them successful.

C.  Methods of Interpreting Constitutional Law Five different, but overlapping approaches to constitutional interpretation have been identified: the literal approach, the doctrine of harmonious interpretation, the purposive or broad approach (rejecting excessive literalism); the historical approach (which considers how the law stood at the time of the Constitution’s enactment); and the natural law approach (now fallen into disfavour).17 However, the courts have shown no consistency with regard to any particular approach and this gives rise to the suspicion that individual judges are willing to rely on any such approach as will offer adventitious support for a conclusion which they have already reached.18

9 Prior to this, there was already a statute-based Court of Criminal Appeal. 10 See Art 34.3.2° of the Constitution. 11 [1987] I.R. 713. 12 [2012] IESC 47. 13 See Crotty v An Taoiseach [1987] IR 713 at 766. 14 See Art 34. 15 Beginning with Ryan v Attorney General [1965] 2 IR 294. 16 Art 46(2) of the Constitution. 17 See generally G Hogan, G Whyte, D Kenny and R Walsh, Kelly: The Irish Constitution, 5th edn (Dublin, Bloomsbury, 2018) 44–45 and 1456–67. 18 Hogan et al, Kelly: The Irish Constitution, 9–10.

198  Gavin Barrett

D.  Do Courts Generally Scrutinise Economic Issues? Irish courts are reluctant to scrutinise economic issues. In rejecting a constitutional challenge to the introduction of a property tax in Madigan v Attorney General,19 O’Hanlon J observed that ‘very considerable latitude must be allowed to the legislature in the enormously complex task of organising and directing the financial affairs of the state’. A similar approach is taken regarding social welfare matters.20 Furthermore, of the recommendations of the 2012–14 Constitutional Convention, only that recommending an increased constitutional (and therefore judicial) role for economic, social and cultural rights failed either to lead to a referendum or to remain on the political agenda.

E.  Does this Inform the Attitude Vis-à-Vis EU Law? In Crotty v An Taoiseach, Walsh J observed that the freedom to formulate foreign policy is just as much a mark of sovereignty as the freedom to form economic policy and the freedom to legislate. The latter two have now been curtailed by the consent of the people to the amendment of the Constitution which is contained in [now Article 29.4.5-6] of the Constitution.21

In other words, the freedom to form economic policy is part of what is covered by the description of Ireland as a sovereign state in Article 5 of the Constitution. However, EU laws, acts and measures and state laws, acts and measures necessitated by EU membership are protected by the access/immunity clauses from constitutional attack on this ground. Even beyond this immunity, however, the courts have been reluctant to interfere in economic matters. In Crotty the Supreme Court held ratification of the Single European Act to be (then) unconstitutional but only as regards Title III of the Act (concerning foreign policy) rather than in relation to the (more economically-relevant) other Titles. In Pringle22 (a challenge to the ratification of the (non-EU) ESM Treaty), O’ Donnell J (part of the Supreme Court majority) defended the commitment even of substantial sums by the government through Treaty agreement. There is no doubt that the figures involved here are very substantial and the decision to ratify the ESM is one which may have significant consequences for the Irish economy, but the quantum of a decision does not alter the identity of the actor required by the Constitution to make the decision. As a matter of history, Irish Governments have expended very considerable sums indeed in, for example, the education and health sectors, pursuant to departmental circulars, and without even the benefit of legislation still less the approval of the People in referenda. In more recent times, Governments have made decisions involving both the expenditure and borrowing of enormous sums of money. In none of these cases has it been suggested that the approval of the People in a referendum is required. Under the Constitution, Governments are expected, and required, to make decisions which on occasion may be momentous …23

He also defended the possibility of expending funds outside the national territory, continuing: it is true that the ESM fund, including that portion subscribed by Ireland, may be expended outside the territory of Ireland. But it is commonplace for public funds to be extended to, and expended by,

19 [1986]

ILRM 136.

21 [1987]

IR 713 at 783. Emphasis added. 3 IR 1. 3 IR 1 at 112.

20 MacMathúna v Attorney General [1995] 1 IR 484; Lowth v Minister for Social Welfare [1998] 4 IR 321 [1999] 1 ILRM 5.

22 [2013] 23 [2013]

Ireland  199 bodies outside the Irish legal order … In my view, what the Constitution requires is that the decision to subscribe such funds should be taken by the correct organ of Government on its own, and not in subordination to any other body. That decision cannot be transferred, alienated or abdicated to another body. The relevant decision however is the decision to subscribe the funds for an identified purpose.24

Similarly, Clark J (also part of the majority) approved the trial judge’s finding that it was implicit in Article 29.5.2° of the Constitution that the government had power, subject to approval by Dáil Éireann, to enter into international agreements giving rise to financial liability for the state.25 There were certain restraints, however: the Constitution restrained the government from abdicating or partly relinquishing its power to formulate and implement policy. The core question was ‘whether the consequence of the ratification of the ESM Treaty will be that the formulation and implementation of the State’s policy in relation to economic and monetary matters is to be significantly abdicated or subordinated to others’.26

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  Coverage by the ‘General Membership Clause’ of the Constitution: Specific Provisions on EMU Membership, Accession, Treaty Amendments and Judicial Control on EMU Matters Until 2009, the Treaty provisions concerning EMU were found in the EC Treaty (as amended by the Maastricht Treaty) and in some annexed Protocols. The Maastricht Treaty was responsible for the introduction of the decisive provisions. Since the Maastricht Treaty provisions (which also set up a new organisation, the European Union) went beyond the essential scope or objectives of the existing Treaties, the original Europe clause in the Constitution was now supplemented. An amendment facilitating the ratification of the Maastricht Treaty was approved by referendum in June 1992 and Ireland was among the first 11 countries selected to participate in the third stage of EMU from 1 January 1999.27 Adjustments had to be made to domestic law. Thus, the Central Bank Act 1998 was adopted, providing inter alia for the membership of the Irish Central Bank in the European System of Central Banks and ensuring the full and effective independence of the Bank regarding ECB/ESCB issues. More broadly, the Economic and Monetary Union Act 1998 was also adopted, providing that on the introduction of the euro in 1999, the currency of the state would be the euro. It also removed incompatibilities between Irish monetary law and the EU legal framework for the use of the euro, and also gave effect to other relevant provisions of EU law (eg, regarding the redenomination into euro of outstanding government debt). Subsequent treaties saw little change in the EMU-related Treaty provisions bar (a) the replacement of the obsolete cooperation legislative procedure, and (b) the elevation as a result of the Lisbon Treaty of the ECB to the status of a European Union institution.

24 [2013] 3 IR 1 at 113. 25 Approving in this respect and the others mentioned in the text above, the views of the trial judge, Laffoy J. 26 [2013] 3 IR 1 at 160. 27 See G Barrett, EMU – The Third Stage. An Examination of the Treaty and non-Treaty Basis of Economic and Monetary Union (Institute of European Affairs, 1997) and G Barrett (ed) Legal Consequences of the Single Currency (47 pp), Report to 19th FIDE Conference in Helsinki,1–3 June 2000.

200  Gavin Barrett Ratification of the Lisbon Treaty by Ireland was (on the second attempt) facilitated by a 2009 referendum amending the Constitution. This amendment (replacing the provisions which had authorised entry to the Communities) provided, inter alia, that 5° 6°

The State may ratify the Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community, signed at Lisbon on the 13th day of December 2007 (‘Treaty of Lisbon’), and may be a member of the European Union established by virtue of that Treaty. No provision of this Constitution invalidates laws enacted, acts done or measures adopted by the State, before, on or after the entry into force of the Treaty of Lisbon, that are necessitated by the obligations of membership of the European Union referred to in subsection 5° of this section or of the European Atomic Energy Community, or prevents laws enacted, acts done or measures adopted by— i ii iii

the said European Union or the European Atomic Energy Community, or institutions thereof, the European Communities or European Union existing immediately before the entry into force of the Treaty of Lisbon, or institutions thereof, or bodies competent under the treaties referred to in this section, from having the force of law in the State.

B.  Judicial Control on EMU Matters Article 29.4.6° is a longer version of the second sentence in the original Article 29.4.3°. This provision was needed in 1973 to prevent several constitutional provisions colliding with the new European legal order.28 Henchy J (writing extra-judicially in 1977) opined that the approximation and harmonious development of economic activities envisaged by the EEC Treaty was incompatible with the sovereignty clause in Article 5 of the Constitution.29 He returned to this theme in the Supreme Court ruling in Crotty v An Taoiseach,30 where he was one of a majority holding Part III of the Single European Act unconstitutional for infringing Article 5. Henchy J also cited Article 1, opining that what he held to be the constitutionally inalienable right of the Irish people to control the institutions of government and to develop the life of the nation along the lines of ‘its own genius and traditions’ … has now in fact been alienated, at least in part and, according to one theory, irreversibly.31

From the domestic Irish legal perspective, not only the new legal order itself needed to be rescued from unconstitutionality but also Irish laws, acts and measures which membership made necessary. The immunity conferred by the two clauses of what is now Article 29.4.6° thus constitute a major limitation on the Constitution’s reach. This limitation has increased in breadth as the EU has spread its activities in the last two and a half decades into wider policy areas. Article 29.4.6° (or rather its similarly-worded predecessor) was most broadly interpreted by Walsh J in Campus Oil v Minister for Industry and Energy,32 when he interpreted it as making 28 Eg, Art 6 (confining governmental powers to the organs of the Irish State); Art 15.2.1° (vesting sole and exclusive law-making power in the Oireachtas); Art 28.2 (providing that the executive power of the state be exercised by or on the authority of the Government); Art 34.1 (requiring justice to be administered by judges appointed in the manner provided by the Constitution); Art 34.3.1° (providing for a High Court with full original jurisdiction); and Art 34.3.2° (which expressly includes in the jurisdiction of the High Court jurisdiction to question the constitutional validity of any law). See eg, B McMahon, F Murphy, European Community Law in Ireland (Dublin, Butterworth, 1989), 264–65; Hogan et al, Kelly: The Irish Constitution (2018) 592. 29 S Henchy, ‘The Irish Constitution and the EEC’ (1977) 1 DULJ 20, 21. 30 [1987] IR 713. 31 Henchy, ‘The Irish Constitution and the EEC’, 25. See now, however, Art. 50 of the Treaty on European Union. 32 [1983] IR 82.

Ireland  201 Article 177 of the EEC Treaty33 part of Irish law, qualifying and altering the interpretation to be given to Article 34 of the Irish Constitution – thus effectively scheduling the treaties like some kind of gigantic new protocol to the Constitution’s text. This has been (arguably correctly) criticised as an excessively broad interpretation of Article 29.4.6°.34 Subsequently, the CJEU would formulate its principle of harmonious interpretation, which ‘requires the national court to consider national law as a whole in order to assess to what extent it may be applied so as not to produce a result contrary to that sought by EU law’.35 This has not so far been applied to a national constitutional provision, but the language of the court seems broad enough to suggest that this may someday happen. If so, it may yield a result, not unlike that envisaged by Walsh J in Campus Oil. The first limb of Article 29.4.6° provides a shield of immunity for laws, acts or measures ‘necessitated by the obligations of membership of the European Union’. The obligations of membership are referred to, not the obligations of EU law. Phelan – arguably correctly – considers this latter issue ‘partly a political question’.36 Academics dispute the question whether a law, act or measure is necessitated by Union membership is a question of Irish law37 or European law. It seems appropriate, and consistent with the approach of the Supreme Court in Meagher v Minister for Agriculture,38 to regard the concept of ‘necessitated by the obligations of membership of the European Union’ as being (a) a test determined by Irish law, (b) which is broader than but can be expected to include anything deemed by the European Court of Justice to be a requirement of EU law. Temple Lang has argued39 that the original ‘necessitated’ clause was a renvoi from the Irish Constitution to Community (now EU) constitutional law.40 Irish law arguably should deem anything required by EU law to be necessitated by membership obligations. However, this arguably does not encapsulate either the breadth of Article 29.4.6° (which could be greater than what European law requires) or its nature, which is Irish, not EU law, even if EU law may offer conclusive evidence that the requirements of Irish law (in the shape of the ‘necessitated’ clause) have been met. When exactly laws, acts or measures will be regarded as ‘necessitated’ is a significant issue. The narrower the approach taken by Irish courts, the more limited will be the scope of the immunity clause. The Irish courts have had difficulty in producing an entirely satisfactory test, however.41 There has been a lack of consistency, particularly in the Supreme Court’s approach.42 At the interlocutory High Court stage in Crotty v An Taoiseach,43 Barrington J held that the ‘necessitated’ clause meant that ‘the Constitution could not now be invoked to invalidate any measure which the State was directed by the institutions of the EEC to take arising out of the 33 The predecessor of the present Art 267 TFEU. 34 Hogan et al, Kelly: The Irish Constitution, 600. See also D O’Keeffe, ‘Preliminary Deference: The Supreme Court and Community Law’ (1983) 5 DULJ, 286. Cf now the Supreme Court ruling in Data Protection Commissioner v Facebook Ireland Ltd & anor [2019] IESC 46. 35 Case C-239/09 Seydaland Vereinigte Agrarbetriebe GmbH v BVVG Bodenverwertungs- und -verwaltungs GmbH EU:C:2010:778, at para 50 thereof. See also paras 60–62 of the ruling of the Court of Justice in Case C-12/08 Mono Car Styling SA (in liquidation) v Odemis and Others EU:C:2009:466. 36 See D Rossa Phelan, Revolt or Revolution – The Constitutional Boundaries of the European Community (Dublin, Round Hall, 1997), 345. 37 A view defended by Phelan, Revolt or Revolution 338–49. 38 [1994] 1 IR 329. 39 See also G Hogan and A Whelan, Ireland and the European Union: Constitutional and Statutory Texts and Commentary (London, Sweet and Maxwell, 1995) 30. 40 See J Temple Lang, ‘The Widening Scope of Constitutional Law’ in D Curtin and D O’Keeffe (eds), Constitutional Adjudication in European Community and National Law (Dublin, Butterworth, 1992) 229, 231, and P Gallagher, ‘The Constitution and the Community’ (1993) 2 Irish Journal of European Law, 129, 130–32. This has also garnered considerable judicial support (See text below). 41 Gallagher, ‘The Constitution and the Community’, 131. 42 See B Doherty, ‘Land, Milk and Freedom – Implementing Community Law in Ireland’ (2004) 11 IJEL, 141, 171. 43 [1987] IR 713.

202  Gavin Barrett exercise of their powers’44 – seemingly drawing a link between the requirements of EU law and the applicability of the ‘necessitated’ clause. The High Court plenary ruling dwelt somewhat longer on what is now the Article 29.4.6° immunity clause (of which, as we have seen, the ‘necessitated’ clause forms the first branch). According to Barrington J, who delivered the three-man Court’s ruling: the immunity conferred by the second sentence of the Third Amendment would appear to apply to legislative and administrative measures taken in the day-to-day running of the Community … Put another way, there are some acts of the institutions of the Community which are directly enforceable in all the Member States whereas others require legislative or administrative action by the Member States to procure their enforcement. It is these matters which are referred to in the [immunity clause] … It is these matters alone which are given immunity from constitutional challenge by the [immunity clause]. But such of these matters as are acts of the institutions of the Communities derive their status in domestic law from the European Communities Act, 1972. If the [immunity clause] is the canopy over their heads, the Act of 1972 is the perch on which they stand.45

On appeal, the Supreme Court took a similar view of the non-application of the immunity clause to treaties. Finlay C.J. (who gave the single judgment of the court in this respect) held that ‘it is clear … that the ratification by the State of the Single European Act … would not constitute ‘an act necessitated by the obligations of membership …’ For both the Supreme and High Court then, the constitutionality of the Single European Act rested on the Article 29.4 accession clause, not the immunity clause. In three High Court cases decided shortly after Crotty, more focus was brought to bear on the ‘necessitated’ clause. In Lawlor v Minister for Agriculture,46 Murphy J. stated: [I]t seems to me that the word necessitated in this context must extend to and include acts or measures which are consequent upon membership of the Community47 and are in general fulfilment of the obligations of such membership and even where there may be a choice of degree or discretion vested in the State as to the particular manner in which it would meet the general spirit of its obligations of membership.48

Murphy J himself clearly regarded such an approach as having its limits. Six months after his Lawlor ruling, the same judge observed in Greene v Minister for Agriculture that there must be a point at which the discretion exercised by the State or the national authority is so farreaching or so detached from the result to be achieved by the directive that it cannot be said to have been necessitated by it’.49

Overall, this may be regarded as having involved taking a moderately liberal approach to ‘necessitated’, viewing it as encompassing laws, acts or measures in a penumbra going beyond – but 44 [1987] IR 713 at 727–28. 45 [1987] IR 713 at 758 (Emphasis added). The thinking underlying this rejection of the idea of applying the immunity clause to treaties was explained by Barrington J. thus: ‘Had the Oireachtas not passed the European Communities Act 1972, Ireland might still have been a member of the Community in international law, but it would have been in breach of its obligations in international law under the Treaty of Rome and the Treaty of Accession. This, however, would not have been a matter regarding which the domestic courts of this country would have had any competence because the Treaty would not have been part of the domestic law. The immunity from constitutional challenge conferred by [the second limb of the immunity clause] on laws enacted, acts done, or measures adopted by the Community or its institutions would, therefore, have been meaningless as these laws, acts or measures would not have been part of the domestic law of this country. To make them part of the domestic law of this country, the European Communities Act, 1972, was necessary. This Act cannot, therefore, have been passed by virtue of [the immunity clause] but by virtue of the licence to join the European Community contained in the first sentence of the Third Amendment.’ 46 [1990] 1 IR 356; [1988] ILRM 400. 47 For which we may now read ‘Union’. 48 [1990] 1 IR 356 at 377. 49 [1990] 2 IR 17 at 25.

Ireland  203 not too far beyond – the strict requirements of EU law. An alternative (and broader-seeming) reasonableness-based version of the same kind of ‘penumbra’ approach can be seen in the ruling of Lynch J in Condon v Minister for Agriculture,50 where that judge, speaking of domestic measures implementing a scheme envisaged by a European-level regulation, held that insofar as such details of implementation are reasonable they must be regarded as necessitated by the obligations of membership of the Communities and cannot therefore be unconstitutional. If however the details of the implementation were unreasonable or unfair then they could hardly be said to be necessitated by the obligations of membership of the Communities and they would be open to constitutional challenge.51

The decisions have attracted some criticism,52 yet have left the government the kind of room for manoeuvre in implementing European law that probably motivated the drafting of the immunity clause in the first place. In subsequent cases on the immunity clauses, the focus shifted to the choice of the form of domestic law instrument used to implement EU law measures, and whether that choice could be immune.

C.  (Continued) Relevance of (General) Provisions on International Law and/or Treaties Outside the scope of EU law, the Irish legal system is dualist (at least), under Article 29.6, which provides that no international agreement shall be part of the domestic law of the state save as may be determined by the Oireachtas. The usual formalities regarding treaty ratification are adhered to with EU treaties. If implementing an international treaty might involve unconstitutionalities, the approach has been to include a provision authorising the Treaty’s ratification in the Constitution (thereby requiring a referendum). This was done with the Lisbon Treaty53 as well as with non-EU treaties. Sometimes all that is necessary is bare permission to ratify. (Article 29.9 simply declares ‘the State may ratify the Rome Statute of the International Criminal Court …’) Sometimes, the amendment goes further. The Article 29.4.6° immunity clause for certain EU-related laws, acts and measures is an example of this. Another example is 29.4.10° which contains its own immunity clause, modelled on what is now Article 29.4.6°. It both permits ratification of the Treaty on Stability Coordination and Governance (TSCG) and creates an immunity clause concerning it. Procedural requirements also exist. Under Article 29.5.1°, every international agreement to which the state becomes a party must be laid before the Dáil. Under Article 29.5.2°, the state will not be bound by any international agreement involving a charge on public funds unless its terms have been approved by the Dáil.54 Such provisions are adhered to even in the case of EU treaties.

50 [1993] IJEL 151. 51 [1990] 2 IR 17 at 156. Emphasis added. 52 See eg, Hogan et al, Kelly: The Irish Constitution, 600–03. 53 Under Art 29.4.5°, ‘the State may ratify the Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community, signed at Lisbon on the 13th day of December 2007 (‘Treaty of Lisbon’), and may be a member of the European Union established by virtue of that Treaty.’ Note also, concerning the Euratom Treaty, Art 9.4.3°, ‘the State may become a member of the European Atomic Energy Community (established by Treaty signed at Rome on the 25th day of March 1957).’ 54 Although under Art 29.5.3°, neither requirement applies to agreements or conventions of a technical and administrative character.

204  Gavin Barrett

D.  Major Crisis Related Developments; Rules Governing EMU Related Instruments Outside the EU Legal Order, Especially the ESM and the TSCG The overall impact of crisis-related EMU related law in Ireland has been considerable. Ireland was one of the countries hardest hit by the financial and sovereign debt crises, and European intervention played an important role in helping to end them.55 In October 2008, the government issued a €440 billion two-year-long state guarantee to six Irish banks to prevent their collapse. The guarantee was decided on by the government on 30 September 2008 (the day after a record ISEQ fall and the initial rejection by the US House of Representatives of the Emergency Economic Stabilization Act of 2008) and implemented by means of the enactment of the Credit Institutions (Financial Support) Act 2008 on 2 October. This was followed by the February 2009 multi-billion euro bail-out by the Irish government of the two largest banks, Allied Irish Banks and Bank of Ireland. In January 2009, the Anglo Irish Bank Corporation Act was adopted, nationalising the eponymous debt-ridden bank. In December 2010, the Irish government took a majority stake in Allied Irish Banks. This subsequently grew to 99.8 per cent, effectively nationalising it. Before the expiry of the 2008 law, the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 was created under it in December 2009,56 providing for an unconditional and irrevocable state guarantee for certain eligible liabilities (viz, where a serious threat to the stability of credit institutions in the state existed or threatened, and financial support to a specific institution was necessary to maintain the stability of the Irish financial system and remedy a serious disturbance in the economy.) This Scheme’s lifetime was extended by the new government in late 2011 to the end of December 2012. Uncertainty as to, inter alia, the financing needs of Irish banks – and whether Ireland (at this time running a deficit of over €16 billion) could afford these – drove Irish sovereign bond yields to unaffordable levels by October 2010, making it increasingly difficult for Ireland to borrow, and creating the threat of a sovereign funding crisis. In November 2010, the government sought a bail-out consisting of funding from the EFSF, the IMF and other European countries. A so-called ‘troika’ consisting of the ECB, the Commission and the IMF agreed a very detailed three-year aid package in exchange for extensive austerity measures aimed at cutting state expenditure and increasing revenue, severely limiting national economic sovereignty during the lifetime of the agreement. Notwithstanding its significance, the bail-out was not effected by a public law measure or treaty. Its extraordinary impact derived from the potential financial consequences of non-compliance. The (intended) result of this was that no constitutional or other requirements of parliamentary approval applied to the arrangement, although the Dáil was asked to vote its approval of the terms of the agreement in a non-binding resolution in December 2010.57

55 See D Donovan and A Murphy, The Fall of the Celtic Tiger: Ireland and the Euro Debt Crisis (Oxford, Oxford University Press, 2013); J Lee and D McConnell, Hell at the Gates: The Inside Story of Ireland’s Financial Downfall (Blackrock, Mercier Press, 2016); P Honohan, Currency, Credit and Crisis (Cambridge, Cambridge University Press, 2019). 56 SI No 490 of 2009; and M. Sandbu, Europe’s Orphan: The Future of the Euro and the Politics of Debt (Princeton, New Jersey, Princeton University Press, 2017), Chapter 4. 57 See Vol 725 Dáil Debates (15 December 2010) and D O’Donovan, ‘IMF Conditionality, the Irish Constitution and the Need for a Dáil Vote on the Bailout Agreement’, Human Rights in Ireland website, 22 November 2010 and S Coutts, ‘The Oireachtas and the Eurocrisis: Empowerment through Crisis’ (2018) 54 Irish Jurist, 60.

Ireland  205 On 28 November 2010, the Irish government agreed to a Programme of Financial Support for Ireland from the IMF and the EU. As summarised by the Department of Finance in the following terms: the overall EU-IMF Programme of Financial Support for Ireland had a total value of €85 billion. Ireland provided €17.5 billion of this from its own resources (National Pension Reserve Fund and cash reserves). The remaining €67.5 billion was provided by the external partners from the EU, through the European Financial Stability Facility (EFSF) (€17.7bn), the European Financial Stabilisation Mechanism (EFSM) (€22.5bn), and the IMF (€22.5bn). €4.8 billion was provided by way of bilateral loans from the UK (€3.8bn), Sweden (€0.6bn) and Denmark (€0.4bn). Drawdown of funding was subject to compliance with the conditionality set out in the Programme Documents (the Memorandum of Understanding, the Memorandum of Economic and Financial Policies and the Technical Memorandum of Understanding).58

Ireland exited from this programme on 15 December 2013, returning to normal market funding, its economy enjoying sufficient investor confidence that no need existed for any backstop to be provided. However, as is normal with IMF programmes, post-programme surveillance involving twice-yearly review missions has continued. Post-programme surveillance continues until at least 75 per cent of financial assistance received has been repaid. Thus (absent early repayments), it will last at least until 2031.59 The by-now extensive budgetary surveillance within the eurozone should, of course, also be borne in mind. As part of the austerity imposed during the crisis period, public sector pay was cut using the Financial Emergency Measures in the Public Interest Act 2009, the Financial Emergency Measures in the Public Interest (No. 2) Act 2009 and the Financial Emergency Measures in the Public Interest Act 2013. This approach included a constitutional amendment (approved in a referendum on 27 October 2011) permitting the reduction of judicial pay. In October 2014 – in the lead-in to the general election which eventually occurred in February 2016 – it was reported that the Fine Gael-Labour Coalition had agreed a very limited and gradual unwinding of the legislation on pay cuts.60 Fine Gael was returned to power, albeit as a minority government. In May 2012, a new Article 29.4.10° was put in the Constitution to facilitate ratification of the TSCG signed in March 2012 by all eurozone members and eight other EU Member States. The enactment of the Fiscal Responsibility Act 201261 enabled the TSCG budgetary rules to take effect, providing for a medium-term budgetary objective and budgetary correction mechanism; and establishing a Fiscal Advisory Council. Not all Oireachtas-approved crisis-related constitutional changes related to the crisis were successful, however. The Thirtieth Amendment of the Constitution (Houses of the Oireachtas Inquiries) Bill 2011 which sought to increase the investigative powers of Oireachtas committees considerably was defeated in a referendum in October 2011.62 The Thirty-second Amendment of the Constitution Bill 2013 which proposed the abolition of the Senate was also rejected in October 2013.63 Precious political energy that could otherwise have been channelled into more appropriately crafted Oireachtas reform was arguably squandered on both occasions. 58 Ibid. 59 See regarding this and more generally, the Commission website at www.ec.europa.eu/economy_finance/assistance_ eu_ms/ireland/index_en.htm. 60 See S Collins, ‘Brendan Howlin to Begin Unwinding Legislation on Pay Cuts’, Irish Times, 30 October 2014 and P Leahy, ‘Public sector pay body to meet Minister as work begins’, Irish Times, 19 November 2016. 61 Signed into force by the president on 27 November 2012. 62 By a 53% majority. 63 By a 51% majority.

206  Gavin Barrett Other legislation reflected more general eurozone-related commitments. The European Stability Mechanism Act 2012 represented the involvement of domestic Irish law in the creation of a permanent loan mechanism for troubled eurozone states. The European Communities (Amendment) Bill 2012 provided that, inter alia, a related European Council Decision of 25 March 2011 amending Article 136 TFEU to facilitate this should form part of the domestic law of the Irish State. Also hugely significant, although focused on the particular case of Ireland, was the Irish Bank Resolution Corporation Act, 2013, hurriedly adopted in February 2013 as emergency legislation to liquidate the IBRC bank.64 The conversion was also checked (under the watchful eye of the ECB) of massively expensive promissory notes – which had been issued to that bank by the state (involving payments which were both high-interest and annual) – into a series of simpler, sovereign bonds with a maturity measured in decades rather than years,65 thereby reducing the state’s debt burden. Under Article 4(4) of Regulation (EU) 473/2013,66 Ireland was required to have its national medium-term fiscal plans and draft budgets based on independent macroeconomic forecasts, which meant macroeconomic forecasts produced or endorsed by an independent body. This was duly provided for in the Fiscal Responsibility Act 2013. A referendum was held on 31 May 2012 approving the insertion of a new Article 29.4.10° in the Constitution: The State may ratify the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union done at Brussels on the 2nd day of March 2012. No provision of this Constitution invalidates laws enacted, acts done or measures adopted by the State that are necessitated by the obligations of the State under that Treaty or prevents laws enacted, acts done or measures adopted by bodies competent under that Treaty from having the force of law in the State.67

Its wording was clearly modelled on the Europe clause originally found in Article 29.4.3°. The Oireachtas subsequently enacted the Fiscal Responsibility Act 2012, enabling the budgetary rules in Article  3 and 4 TSCG to take effect in Irish law, providing for a medium-term budgetary objective and a budgetary correction mechanism; and establishing an independent Irish Fiscal Advisory Council.68 The ratification of the ESM Treaty and its implementation into Irish law was not viewed as requiring a constitutional amendment. It was ratified and then implemented into domestic Irish law by legislation, the European Stability Mechanism Act 2012. The European Communities (Amendment) Act 2012 further provided that, inter alia, the March 2011 European Council Decision amending Article 136 TFEU, so as to copperfasten the legitimacy of the ESM Treaty and forestall any legal challenges to it, should form part of Irish domestic law.

64 Formerly known as Anglo-Irish Bank. 65 See for analysis of this complex but hugely significant transaction, K Whelan, ‘Ireland’s Promissory Note Deal’, Forbes.com, 11 February 2013 and J Cotterill, ‘Why It Matters That the Irish promissory Notes are Gone’, Financial Times, 7 February 2013. 66 Regulation (EU) 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the eurozone [2013] OJ L 140. 67 See for a somewhat analogous non-European related provision, Art 29.7, which relates to the British-Irish Agreement of 10 April 1998 (‘the Good Friday Agreement’). 68 Under Art 4(4) of Regulation (EU) 473/2013, Ireland must have its national medium-term fiscal plans and draft budgets based on macroeconomic forecasts produced or endorsed by an independent body. The Fiscal Advisory Council was accorded this endorsement function in the Fiscal Responsibility Act 2013.

Ireland  207

E.  Practice and Doctrinal Debate on these Provisions 69 Whereas the TSCG has not given rise to much controversy, the ratification of the ESM Treaty led to a case of constitutional and European legal significance in Pringle v Ireland.70 The plaintiff, a Dáil member, challenged the validity under EU law and the Constitution of both the Treaty Establishing the ESM itself and the linked European Council Decision 2011/199/EU to amend Article 136 TFEU.71 The case led to a revised interpretation of Article 5 of the Constitution. Article 5 provides that Ireland is a ‘sovereign, independent, democratic state’. The reference to Ireland being a ‘sovereign’ state had been a key plank in the Crotty judgment. An unpersuasive super-rigorous application of it, in that case, led the Supreme Court by a 3:2 majority to find ratification of Title III of the Single European Act unconstitutional.72 Thus eg, Henchy J had asserted that the State’s right to conduct its external relations is part of what is inalienable and indefeasible in what is described in Article 5 as ‘a sovereign, independent, democratic State’. It follows … that any attempt by the government to make a binding commitment to alienate in whole or in part to other States the conduct of foreign relations would be inconsistent with the government’s duty to conduct those relations in accordance with the Constitution.73

These requirements of sovereignty were so demandingly framed by the Supreme Court that continued adherence to them would have raised doubts even as to the compatibility of Ireland’s membership of the UN.74 The Court arguably validated such criticisms in the 1990 case of McGimpsey v Ireland 75 where it distinguished this aspect of Crotty – rather unconvincingly – rather than apply it to the 1985 Anglo-Irish Agreement.76 69 For further detail, see G Barrett, ‘The Evolving Door to Europe: Reflections on an Eventful Forty Years for Art 29.4 of the Irish Constitution’ (2012) 48 Irish Jurist 132. 70 [2013] 3 IR 1. 71 This confirmed that the EU Member States had the power to establish the Mechanism. 72 Which was regarded by the Supreme Court as lacking any protection under the accession clause of the then Art 29.4.3° since it went beyond the essential scope or objectives of the existing treaties. Notwithstanding the Supreme Court ruling in Crotty, the Single European Act vies with the Nice Treaty as the treaty in relation to which the constitutional need for a referendum vote has been the most questionable. For concerns regarding the Crotty case, see G Barrett, ‘Building a Swiss Chalet in an Irish Legal Landscape? Referendums on European Union Treaties in Ireland and the Impact of Supreme Court Jurisprudence’ (2009) 5 EuConst, 32 and A Road Less Travelled – Reflections on the Supreme Court Rulings in Crotty, Coughlan and McKenna (No. 2) (IIEA, Dublin, 2011). See also on this aspect of Crotty, D Fennelly, ‘Crotty’s Long Shadow: the European Union, the United Nations and the Changing Framework of Ireland’s International Relations’, conference paper, The Irish Constitution: Past, Present and Future, Honourable Society of the Kings Inns, Dublin, 28–29 June 2012. For a more favourable reading, see Hogan and Whelan, Ireland and the European Union, 42–49. 73 [1987] IR 713 at 787. 74 See G Hogan, ‘The Supreme Court and the Single European Act’ (1987) 22 Irish Jurist 55 at 69; also, A Whelan and L Heffernan, ‘Ireland the United Nations and the Gulf Conflict: Legal Aspects’ (1991) Irish Studies in International Affairs, 115, 140–45. 75 [1990] 1 IR 110, [1991] ILRM 400. 76 The main – apparently significant – distinction to which reference was made by the Court in McGimpsey was the fact that the Anglo-Irish Agreement was an agreement reached between two sovereign governments rather than twelve. (See [1990] 1 IR 110 at 121–22.) Finlay CJ who delivered a judgment which was agreed to by four of the five judges also noted that ‘the Government of Ireland at any time carrying out the functions which have been agreed under the Anglo-Irish Agreement is entirely free to do so in the manner in which it, and it alone, thinks most conducive to the achieving of the aims to which it is committed. A procedure which is likely to lead to peaceable and friendly cooperation at any given time must surely be consistent with the constitutional position of a state that affirms its devotion not only to the ideal of peace and friendly cooperation but to that ideal founded on international justice and morality.’ ([1990] 1 IR 110 at 121). Where, however, the Court saw any distinction in this regard between the Single European Act and the Anglo-Irish Agreement is not apparent.

208  Gavin Barrett Change came in Pringle.77 Clarke J’s judgment was the clearest expression of the majority approach.78 He favoured a restrictive reading of Crotty, observing that: on a narrow reading of some of the passages cited it might be said that this court, in Crotty, came to the conclusion that the overall architecture of the Irish Constitution does not permit the Government … to enter into binding arrangements with other countries which would, in any way, have the effect of circumscribing Ireland’s freedom of action in the foreign policy field … it does not seem to me that such a conclusion can be found in the judgments of this court in Crotty.79

Clarke J went on to formulate a new, more liberal test of what was permitted to the government: the limit on the discretion which the Government holds arises where the relevant treaty involves Ireland in committing itself to undefined policies not specified in the treaty and in circumstances where those policies, which Ireland will be required to support, are to be determined not by the Government but by institutions or bodies specified in the treaty. It is an abdication, alienation or subordination of policy formation and adoption which is not permitted. A transference of the means of implementing a policy agreed by the Government, and specified in the treaty concerned, to an appropriate implementation institution or body may be permitted provided that it does not go so far as to amount, in substance, to an abdication, alienation or subordination of the role of government under the Constitution.80

For Clarke J, the ESM Treaty was thus an exercise in sovereignty rather than an abdication or transfer of it.81 Thus no unconstitutionality was involved in the Treaty’s ratification (and, therefore, no referendum to facilitate it was required). The extent of the reduction in the number of referendums that would otherwise have been caused by the Crotty ruling as originally understood (and as understood in Hardiman J’s dissenting opinion in Pringle) remains to be seen, however. Whether a referendum must be held on any given treaty will now depend on various factors, including whether undefined policies are envisaged in the treaty in question; whether the decision to support these policies is taken out of the hands of the government by that treaty; and whether that Treaty is capable of attracting escaping constitutional attack under the ‘European clause’ in Article 29.4 of the Constitution.

III.  Constitutional Obstacles to EMU Integration A.  Revealed Obstacles by the Implementation of the Crisis Management Measures Within and Outside EU Law Pringle revealed that the sovereignty clause did not prevent the establishment of the ESM. Other cases revealed the absence of obstacles to crisis management measures. As part of the government’s response to the crisis, extraordinarily broad delegations of power were made to government ministers. Hence, for example, section 7 of the Credit Institutions (Stabilisation) Act 2010, authorised ministerial orders directing specific actions to be taken by financial institutions. In Collins v Minister for Finance,82 the Supreme Court also upheld 77 [2012] IESC 47. 78 The sole dissenting voice in the Supreme Court ruling (Denham CJ, Murray J, Hardiman J, Fennelly J, O’Donnell J, McKechnie J and Clarke J) was that of Hardiman J. Clarke J’s analysis was accepted by both O’Donnell J and McKechnie J and is compatible with the analysis of Denham CJ. 79 Para 4.16 of the ruling of Clarke J. 80 Para 4.25 of the ruling of Clarke J. Emphasis added. 81 Para 8.13 of the ruling of Clarke J. 82 [2016] IESC 73.

Ireland  209 the constitutionality of the issuance of promissory notes to Anglo Irish Bank under the Credit Institutions (Financial Support) Act 2008. This Act had empowered the Minister for Finance to extend financial support of unlimited monetary value to credit institutions. The Supreme Court took a surprisingly narrow view of the constitutional non-delegability of the Oireachtas role. Broad delegations of power were also made to the National Asset Management Agency (NAMA) under section 84 of the National Asset Management Agency Act 2009. This provided that NAMA could acquire eligible bank assets of participating institutions if it considered it necessary or desirable to do so having regard to the purposes of that Act. The Supreme Court upheld this in Dellway Investments Ltd and others v National Asset Management Agency and the Attorney General.83

B.  Obstacles to the (Further) Transfer of Powers in the Field of EMU Through Treaty Amendments One of the main constitutional limits to the further transfer of powers by treaty agreement was seen in the ruling in 1987 by the Supreme Court in Crotty v An Taoiseach that ratificationauthorising clauses such as those now found in Arts. 29.4.5° and 29.4.10° of the Constitution ‘must be construed as an authorisation … to join in amendments of the Treaties so long as such amendments do not alter the essential scope or objectives’ of what is now the Union.84 Where this limit is transgressed (as was held should be the case in Crotty, were Ireland to ratify or implement domestic law Title V ofthe Single European Act), then all of the remaining provisions of the Irish Constitution remain relevant. (They also remain relevant where an EMU related treaty is not a European Union treaty at all).85 With Crotty the only case to have been decided on the point, it can be very difficult to know in advance when an amending treaty goes beyond the essential scope or objectives of the existing treaties. Should the government ever seek to incorporate wholly or partly the terms of an EU treaty into national law by parliamentary means alone, certainty could only be provided by (a) the president referring to the Supreme Court for an opinion on its constitutionality any Bill purporting to incorporate the terms of the treaty into Irish law,86 or else by (b) a challenge by a private party to the constitutionality of incorporating legislation and/or to any attempt by the government to ratify the treaty without a referendum. In practice, every Irish government ratifying a treaty since Crotty has found itself under immense pressure to hold a referendum when even only a reasonable probability exists that it goes beyond the essential scope/objectives of existing constitutive treaties. Crotty ushered in an era when having a referendum on an EU Treaty became the legally safe option in ratifying. Politically, the Crotty case has contributed to an expectation for many that every major European treaty will be accompanied by a referendum. Insofar as reform of the EMU involves amendment of the existing EU treaties (or the TSCG) beyond the extent authorised by the Crotty test relating to Article 29.4.5° (or, in the case of the TSCG, Article 29.4.10°), no special authorisation is provided by the Constitution for Irish participation in this. Thus if any provision of the Constitution will be transgressed by such an 83 [2011] IESC 4. 84 See ruling of Finlay C J (who delivered the ruling of the court) [1987] I.R. 713 at 767. Emphasis added. 85 Except for the TSCG, accession to which was authorised by Art 29.4.10°. 86 Such references can be made under Art 26 of the Constitution. The president is required to consult the Council of State before taking such action, but whether to make a reference is, ultimately, at his/her discretion, and thus outside the control of the government.

210  Gavin Barrett amendment – and the relatively strict Crotty/Pringle approach to national sovereignty under Article 5 is relevant here – a referendum will be needed to render possible the relevant reform. Indeed, such a referendum will probably be held even if a provision of the Constitution merely seems likely to be transgressed.

i.  ‘Core Competences’, ‘Non-Transferable’ Constitutional Identities, Sovereignty Reserve, etc a)  Core Competences Some of the Constitution’s language might be thought to suggest that certain constitutional rights are untouchable – eg, Article 43’s description of the right to private property as ‘a natural right, antecedent to positive law’. However, modern case-law indicates that there are no unamendable constitutional rights. In Re Article 26 and the Regulation of Information (Services Outside the State for Termination of Pregnancies) Bill 199587 and in some subsequent rulings, the Supreme Court has held that there could be no question of a constitutional amendment properly placed before the people and approved by them being held unconstitutional.88 This would include an amendment inserted as a result of a referendum on an EU treaty. Thus ‘no constitutional provision is immune from amendment, and a constitutional amendment cannot itself be unconstitutional’.89 Another uniform feature of Irish constitutional jurisprudence is that the immunity clause in the Irish Constitution provides for no exceptions in its declaration that ‘no provision of this Constitution’ invalidates acts of EU institutions or necessitated acts of the Irish state.90 No explicit doctrine of inalienable core constitutional competences exists in Irish law. The rather different question of institutional competences was key in the second part of the Crotty judgment (which largely centred around the notion of sovereignty). As Hederman J (one of the three-judge majority in that ruling) put it, ‘the State’s organs cannot contract to exercise in a particular procedure their policy-making roles or in any way to fetter powers bestowed unfettered by the Constitution. They are the guardians of these powers – not the disposers of them’.91 Along similar lines, Walsh J, also in the majority, observed ‘the people conferred full freedom of action upon the Government to decide matters of foreign policy [inter alia] …. In my view, this freedom does not carry with it the power [inter alia] to abdicate that freedom …’.92 Any such transfer of competence will thus be an infringement of the Constitution’s distribution of powers. However, any such unconstitutionality can, of course, be remedied by referendum (The Single European Act itself was approved by referendum after Crotty). This finding of nontransferability of competences by or between the various branches of government probably played a strong role in the decision to hold a referendum on the TSCG, given the implications this Treaty had for national executive, legislative and judicial power.

87 [1995] 1 IR 1. 88 See F de Londras and D Gwynn Morgan, ‘Constitutional Amendment in Ireland’ in X Contiades (ed), Engineering Constitutional Change: A Comparative Perspective on Europe, Canada and the USA (London, Routledge, 2012) 179. 89 Ibid. 90 Contrast the corresponding provision of the German Grundgesetz, which subjects German cooperation to the ­principles of democracy, the rule of law, social and federal principles, the principle of subsidiarity and comparable protection of fundamental rights – and also, specifically asserts the applicability of the German Constitution’s Ewigkeitsklausel which precludes constitutional amendments affecting Germany’s federal structure, human dignity or democracy. See also M Cahill, ‘Constitutional Exclusion Clauses, Art 29.4.6 and the Constitutional Reception of European Law’ (2011) 34 DULJ, 74, 77–78. 91 [1987] IR 713 at 794. 92 Ibid, at 783.

Ireland  211 b)  Constitutional Identity No explicit doctrine of ‘constitutional identity’ exists in Irish law, so as to require decisions regarding particular issues to remain with the national parliament, executive or electorate.93 Two sources might have suggested a basis for a doctrine of unamendable rights.94 First, references to natural law in fundamental rights jurisprudence95 and in the Constitution’s text.96 Strong indications had been given (both judicially and extra-judicially) that such rights were not amendable. In McGee v Attorney General, Walsh J cited the Constitution’s text as indicating that natural rights, or human rights, were not created by law but had their existence confirmed and were given protection by the Constitution.97 He asserted extra-judicially that ‘quite clearly there are fundamental rights which may not be trampled upon even with the support of an overwhelming majority of the people’.98 However, the Supreme Court’s ruling in Re Article 26 and the Information (Termination of Pregnancy) Bill 199599 signalled a move away from reliance on natural law reasoning. The Constitution’s Preamble (with its explicitly Christian references) was suggested as another arguable source of unamendable rights,100 but modern judicial support for this seems unlikely. Notably, Kearns P refused permission to two litigants to bring petitions challenging the outcome of the May 2015 same-sex marriage referendum on grounds including the alleged conflict of the result with the Constitution’s Christian ethos – an area Kearns P reportedly stated the Court had no power to address.101 Although there is no constitutional identity doctrine, there are issues which in the past have appeared to raise particular sensitivities in the Courts such as military neutrality102 or abortion103 – although never to the extent of a judicial finding that amendments concerning these issues would be invalid. 93 Cf. J Sterck, The Constitutional Identity of Member States and the Primacy of European Union Law: A Comparative Study of Ireland and France (unpublished PhD thesis, University College Dublin, 2013). 94 See Phelan, Revolt or Revolution, 361–67. 95 Note, in particular, the Supreme Court rulings in Ryan v Attorney General [1965] 1 IR 294, State (Nicolaou) v An Bord Uchtála [1966] IR 567 and McGee v Attorney General [1974] 284. In McGee and Walsh J observed (at 318) that ‘Arts 41, 42 and 43 emphatically reject the theory that there are no rights without laws, no rights contrary to the law and no rights anterior to the law. They indicate that justice is placed above the law and acknowledge that natural rights, or human rights, are not created by law but that the Constitution confirms their existence and gives them protection’. 96 See Arts 41, 42 and 43 of the Constitution, the former two Arts concerning the rights of the family, (which is described in Art 41 as ‘the natural primary and fundamental unit group of Society, and as a moral institution possessing inalienable and imprescriptible rights, antecedent and superior to all positive law’), the latter Art concerning private property (which is described therein as ‘a natural right, antecedent to positive law’). 97 [1974] IR 284 at 310. 98 Foreword to J Casey, Constitutional Law in Ireland 1st edn (1987) 9. Note that in his dissenting judgment in State (Ryan) v Lennon [1935] IR 170 at 204, Kennedy CJ asserted the existence of natural law limits to the power to amend the earlier 1922 Constitution. 99 [1995] 1 IR 1. 100 The Christian and democratic nature of the state was relied on by Kenny J as a foundation for constitutional fundamental rights in Ryan v Attorney General [1965] 1 IR 294 at 312. 101 See ‘High Court Rejects Two Challenges to Yes Vote’, Irish Times, 6–7 June 2015. Appeals to the Court of Appeal were unsuccessful and further appeals to the Supreme Court refused. See M Carolan, ‘Marriage Referendum Appeals Rejected by Supreme Court’, Irish Times, 17 September 2015. 102 Hence the insertion of Art 29.4.9° in the Constitution which prohibits Ireland adopting a European Council decision to establish a common defence under Art 42 TEU where that common defence would include Ireland. This helped secure referendum approval for the Nice Treaty’s ratification. Notably also, the rather harmless provisions in the Single European Act concerning cooperation in the field of foreign policy became the reason seized on by the Supreme Court in the Crotty case for holding the ratification of that treaty unconstitutional (a situation only remedied in a subsequent referendum). 103 In Society for the Protection of Unborn Children (Ireland) Ltd v Grogan [1989] IR 753, involving an apparent collision between the right to life (under Art 40.3.3° of the Irish Constitution) and the right under EEC law to supply services (or, more exactly, to provide information so as to facilitate the services provision), the Supreme Court indicated willingness to

212  Gavin Barrett c)  Sovereignty Reserve Article 5 of the Constitution states that Ireland is a ‘sovereign, independent, democratic state’. This has continued implications for future non-EU treaty agreements, even given the more liberal interpretation of sovereignty endorsed by the Supreme Court in Pringle.

ii.  Respect of Certain EMU Related Constitutional Features at EU Level Irish respect for EMU-related requirements such as the balanced budget rule has been underscored by the addition of a new Article 29.4.10° following a May 2012 referendum so as to facilitate ratification of the TSCG and the subsequent enactment of the Fiscal Responsibility Act 2012. This Act implements the TSCG budgetary rules (which are somewhat stricter than the existing Stability and Growth Pact standards); institutes a Fiscal Advisory Council and provides both for a medium-term budgetary objective and a budgetary correction mechanism. Article 3(2) requires that the TSCG budgetary rules (found in Article 3(1)) take effect in national law ‘through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes’. Political realities in Ireland104 dictated that these rules be implemented by ordinary legislation, ie, the Fiscal Responsibility Act 2012. Prior to the adoption of this legislation, the substance of proposed budgetary provision was, at least insofar as domestic statutory law was concerned, a matter for the executive. Its constitutional regulation is considered in the next section.

iii.  Tensions between EMU Related Measures and the National (Constitutional) Legal Order Collisions between the Irish constitutional legal order and EMU-related measures have been avoided to date – thanks to a combination of (a) constitutional amendments (facilitating both the Maastricht Treaty and the TSCG) and (b) the relaxation of the Crotty sovereignty test in Pringle. It is possible they will occur in the future if reforms fall (as they well might) outside the confines of either the Article 29.4.5° and 29.4.10° authorisations to join the EU/TSCG; and the Article 29.4.6° and 29.4.10° immunity clauses. The constitutional provisions which would be violated by an EMU-related reform falling outside the Article 29.4.5° limits would obviously depend on the substance of the reform. However, the following provisions of the Constitution might possibly be affected: –– Article 5 – providing that Ireland is a sovereign, independent, democratic state. This provision was successfully invoked in the constitutional challenge brought in Crotty v An Taoiseach105 to the ratification of the Single European Act, but unsuccessfully invoked in the Pringle challenge to the of the ESM Treaty’s ratification, thanks to the more liberal interpretation given to Article 5, and the less rigorous of the notion of sovereignty taken by the Supreme Court. disregard the supremacy principle. (See judgment of Walsh J. at [1989] IR 753 at 768–69.) Such a ruling seems unlikely to recur: majority public opinion in Ireland has moved into line with other EU member states: The Constitutional abortion prohibition has now been deleted in the wake of a May 2018 referendum vote. In IRM v Minister for Justice and Equality [2018] IESC 14, the Supreme Court disregarded earlier judicial straws in the wind by holding that there was no constitutional protection for the unborn outside the now-deleted prohibition on abortion in Art 40.3.3°. 104 In particular reputedly, the insistence of the Labour Party, then the minor partner in the ruling coalition. 105 [1987] I R 713.

Ireland  213 –– Article 6.2 – providing that all powers of government, legislative, executive or judicial, are exercisable only by or on the authority of the organs of State established by the Constitution. –– Article 17.2 – providing that ‘no law shall be enacted, for the appropriation of revenue or other public moneys unless the purpose of the appropriation shall have been recommended to Dáil Éireann by a message from the Government signed by the Taoiseach’. –– the various provisions concerning money bills (which give the Dáil the upper hand in relation to such draft measures).106 –– Article 28.2 – providing that ‘the executive power of the State shall, subject to the provisions of this Constitution, be exercised by or on the authority of the Government’.107 –– Article 29.4.1° – providing that the executive power of the State in or in connection with its external relations is to be exercised by or on the authority of the Government.108 –– Article 29.5.2° – providing that the State shall not be bound by any international agreement involving a charge upon public funds unless the terms of the agreement shall have been approved by Dáil Éireann.109 –– Article 29.6 – providing that ‘no international agreement shall be part of the domestic law of the State save as may be determined by the Oireachtas’. –– Article 33.1 – providing that ‘there shall be a Comptroller and Auditor General, inter alia, to control on behalf of the State all disbursements …’. –– Article 34.1 – providing that justice shall be administered in courts established by law by judges appointed in the manner provided by this Constitution and the Article 34.3.1°, providing that the Courts of First Instance shall include a High Court invested with ‘full original jurisdiction in and power to determine all matters and questions whether of law or fact’.

C.  Scrutiny of Secondary Legislation, Especially Ultra Vires Doctrine i.  Against the Yardstick of National Constitutional Requirements and EU Law a)  EU Law Irish courts scrutinise EU secondary legislation against the yardstick of EU law but, in accordance with the ruling of the CJEU in Foto-Frost,110 will refer the case to that Court rather than declare any EU measure void. Hogan J, delivering the judgment of the Court of Appeal in M.I.F. v International Protection Appeals Tribunal111 acknowledged that this Court has in fact no jurisdiction to declare a European Union legislative measure such as a Regulation to be invalid, since this is a function which is reserved exclusively to the Court of Justice. If, however, this 106 See in particular, Art 22.1.1° and 2°, Art 21.1 Art 21.2, Art 22.2 and Art 24.2. 107 Note also the Art 28.4.4° provision that ‘the Government shall prepare Estimates of the Receipts and Estimates of the Expenditure of the State for each financial year and shall present them to Dáil Éireann for consideration.’ 108 Qualified by Art 29.4.2° so as to allow for international cooperation in matters of common concern. 109 This excludes agreements or conventions of a technical and administrative character under Art 29.5.3°. 110 Case 314/85 ECLI:EU:C:1987:452. 111 [2018] IECA 36 at para 13. Note that in the ruling in Pringle v Ireland [2012] IESC 47 in which the Supreme Court referred the validity of Decision 2011/199/EU for a preliminary ruling by the CJEU, it also specifically adverted to Foto-Frost, acknowledging that ‘in accordance with the decision of the Court of Justice in [Foto-Frost], the High Court judge in Pringle (O’Neill J.) had held Decision 2011/199/EU ‘completely valid’. See also for acknowledgment of the rule, the High Court ruling of J Laffoy in Kennedy and others v Minister for Agriculture & Ors [2011] IEHC 187.

214  Gavin Barrett Court were of the view that a serious issue had been raised as to the validity of the Regulations, then it would have been obliged to refer that question of validity to the Court of Justice pursuant to Article 267 TFEU: see [Case 314/85 Foto-Frost].

b)  National Constitutional Requirements Regarding the development of EMU via sub-Treaty provisions (eg, secondary EU legislation, the constitutional provisions just listed are also potentially relevant). However, the constitutionality of such measures in Irish law (and indeed implementing legislation) is given extensive protection against constitutional attack under these provisions by the two immunity provisions, Article 29.4.6° and Article 29.4.10°.112 Should an EMU reform scenario involve: (a) laws enacted, acts done or measures adopted by the EU or EU institutions or bodies competent under the Treaties (for example the adoption of secondary EU legislation); and (b) laws enacted, acts done or measures adopted by the State necessitated by the obligations of EU membership (for example, laws implementing directives); these will be accorded immunity from Constitutional attack under Article 29.4.6° Under Article 29.4.10°, so too will laws enacted, acts done or measures adopted by the State necessitated by the obligations of the State under the TSCG and laws enacted, acts done and measures adopted by bodies competent under that particular Treaty. Article 29.4.6° and Article 29.4.10° are more limited in the case of national implementing measures than in the case of the relevant European-level measure, because of the ‘necessitated’ criterion found in both provisions.

D.  Limits to ‘European Integration Outside the EU Legal Order’ Insofar as reform of the EMU involves amendment or agreement of non-EU treaties, no special authorisation is provided by the existing treaties for this. If any constitutional provision will be transgressed, a referendum will have to be held. Such a referendum will be held even if a provision of the Treaty seems likely to be violated. This situation has already occurred, with the successful referendum held in May 2012 so as to facilitate ratification and incorporation into Irish law of the TSCG.

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law A.  Country-Specific Modes of Participation of the Irish Parliament and Government in EMU Decision-Making Article 29.4.1° provides that ‘the State’s executive power in or in connection with its external relations be exercised in accordance with Article 28 by or on the authority of the Government’.113 112 Some protection from constitutional attack can also be provided, in an appropriate case, by Art 29.4.7° which states that the state may exercise the options or discretions to which Art 20 TEU (relating to enhanced cooperation) applies, with, however, any such exercise being subject to the prior approval of both Houses of the Oireachtas.) 113 Art 28.2 provides ‘the executive power of the State shall, subject to the provisions of this Constitution, be exercised by or on the authority of the Government.’

Ireland  215 The Oireachtas has not traditionally been among the stronger parliaments in exacting accountability in relation to EU affairs, measured either by institutional strength or activity level. It has been a ‘slow adapter’ to European integration.114 A tradition of executive dominance, a particularly strongly-entrenched party political system (with majority governments the norm), a Westminster-style parliamentary system with little use for committees, a chronic lack of resources, and an electoral system rewarding primarily constituency work all hindered an adequate parliamentary response. Over time, however, the Oireachtas role has evolved. By 1995, the earliest version of the present Joint Oireachtas Committee on EU Affairs appeared. In 2001 (and the effort to get the Nice Treaty accepted), there was a boost in the Oireachtas role, including provisions on scrutinising EU law-making, departmental reports on EU affairs, and ministerial appearances before committees. The Lisbon Treaty reforms to the role of national parliaments produced a range of domesticlevel changes at both statutory115 and constitutional level.116 The Lisbon Treaty changes also provided a stimulus to the development of national parliamentary involvement in EU affairs,117 a still-ongoing process.118 The economic crisis brought (or coincided with) further developments. Hence, after the 2011 general election, ex ante statements to the Dáil on European Council meetings were added to the by-then already extant norm of ex post statements. Scrutiny of EU legislation was mainstreamed to sectoral committees. Other changes, including the promise that government ministers would now normally appear before Oireachtas committees prior to Council meetings, failed to materialise in practice, but wider reforms such as the establishment of a Select Committee on Budgetary Oversight in 2016 and a Parliamentary Budget Office in 2017 saw the Oireachtas gain a greater de facto role in budgetary matters, including in relation to EU-related matters (even if the role of eurozone governments was restricted somewhat de jure in the European Semester process). Because of the inconclusive results of the February 2016 general election, a minority government could only be formed several months after the election and after tortuously long negotiations. This new situation led to broad changes in the legislature-executive relationship. Parliamentary reforms took place, including the election for the first time of the speaker of the lower House, the introduction of the d’Hondt system to select committee chairs, the effective ending (in favour of a new Business Committee) of the prerogative of the Taoiseach (premier) to set the Dáil agenda and a more generous approach to private members’ bills. Accurately assessing the efficacy of such changes may have to await the election of a majority administration. Such an administration has in fact emerged from the February 2020 election, which saw a majority Fianna Fáil – Fine Gael – Green Party administration come to power, but it is as yet too early to assess how this has

114 See generally on this theme, A Maurer and W Wessels ‘National Parliaments after Amsterdam: From Slow Adapters to National Players’ in A Maurer and W Wessels (eds) National Parliaments on their Ways to Europe: Losers or Latecomers? (Baden-Baden, Nomos, 2001) 425. 115 Hence eg, s 7(4) of the European Union Act 2009 facilitates either House of the Oireachtas causing a review action to be brought before the CJEU for infringement of the subsidiarity principle. 116 Hence for example, Art 29.4.8° of the Irish Constitution (inserted by the Twenty-Eighth Amendment of the Constitution (Treaty of Lisbon) Act 2009 implements the Lisbon Treaty passerelles to majority voting and co-decision, while subjecting their use to prior approval of both Houses of the Oireachtas. See generally Barrett The Evolving Role (2018) 159–68. Note that earlier Constitutional amendments to facilitate the ratification of the Amsterdam Treaty of 1997 and the Nice Treaty of 2001 had already provided for a role of the Oireachtas in exercising certain discretions provided for under each of those Treaties. (See respectively, the Eighteenth Amendment of the Constitution Act 1998 and the Twenty-Sixth Amendment of the Constitution Act 2002.) 117 See Barrett, The Evolving Role, 213ff. 118 See for an up-to-date examination of this topic, including a review of all recent Oireachtas reports on this topic, Barrett, The Evolving Role, 281ff.

216  Gavin Barrett impacted upon the operation of the post-2016 election reforms to the executive-parliament relationship. However, not all the results were positive: the 2016–19 Dáil won a reputation for considerably less legislative efficiency than its predecessors, accumulating a large backlog of unprocessed private members’ bills.119

i.  Binding (Parliamentary or Governmental) Resolutions for Ministers in the Council of the EU Ireland has a poor record of securing accountability over what government ministers agree in Council. No system of binding resolutions exists to govern the conduct of ministers in the Council or the Eurogroup. Since Article 29.4.1° requires that the state executive power in external relations must be exercised by the government or on its authority, the introduction of a Danish-style mandate system might well require a constitutional amendment. (Under this system, a government is required to obtain a negotiating mandate from a parliamentary committee before discussing a proposed law in the Council of the EU). The introduction of such a system has never been seriously considered in Ireland, however. In contrast, the introduction of a UK-style scrutiny reserve system has. (Under this system, EU legislative proposals drawn to the attention of a national parliamentary committee are ‘held under scrutiny’ by it, and until such scrutiny ends, government ministers may not agree to the proposals in the Council of the EU.) Oireachtas committees recommended such a system three times,120 but it has not been adopted, reflecting both executive opposition (for fear of such a system being hijacked to advance local political interests) and a lack of interest by parliamentarians (for whom little electoral reward can be expected for any work involved in operating a scrutiny reserve).121 Without a mandate or scrutiny reserve system, there is no incentive for ministers to appear before Oireachtas committees. In practice, the Joint Oireachtas Committee on EU Affairs is briefed in public either ex ante or ex post by the Minister of Foreign Affairs or the Minister of State for European Affairs on a small minority of General Affairs Council meetings.122 No other Council meetings (including Ecofin meetings) are the subject of as many briefings. Even if a minister appears before a pre-Council Oireachtas Committee, he/she does not have to reappear to give an account of what subsequently unfolded. This is both demoralising for members and a disincentive to take Committee work seriously.

119 See in this regard, D MacGuill, ‘One Year In, Is This Really a ‘Do-Nothing’ Dáil?’, Journal.ie, 19 March 2017. 120 In the November 2008 report of the Oireachtas Sub-Committee on Ireland’s Future in the European Union, Ireland’s Future in the European Union: Challenges, Issues and Options, the July 2010 Report of the Joint Sub-Committee on the Review of the Role of the Oireachtas in European Affairs and the April 2014 report of the Joint Committee on European Union Affairs Assessment of Current Structures for Oireachtas Scrutiny of EU Affairs. See generally Barrett, The Evolving Role, Chapter 6. 121 Source: interview conducted by author with then Minister of State for European Affairs, Lucinda Creighton TD, on 27 July 2012. Such fears are not without foundation: see eg, Anon, ‘Healy-Rae Outlines Price of Support’, Irish Times, 4 November, 2010 concerning the price in terms of constituency concessions demanded by one member of parliament in exchange for parliamentary support for one of the most crucial budgets in the history of the state, that preceding the November 2010 EU-IMF bail-out. Nor should this be seen as a once-off occurrence. See more recently, M Brennan, ‘Lowry’s Secret Health Deal with FG’s Harris’, Sunday Business Post, 28 August, 2016, and analogously, P Leahy, ‘Halligan Accuses Noonan of Reneging on Waterford Hospital Promises’, Irish Times, 8 September 2016. 122 Thus, for example, at the time of the initial drafting of this chapter (21 August 2018), there had been 37 General Council meetings (29 formal) in the lifetime of the 32nd Dáil, 35 (of which 28 had been formal) had taken place since the election by that Dáil of the Taoiseach on 6 May 2016. In all that time, there had been just seven ministerial briefings of the Joint Committee on EU Affairs concerning such Councils, three of which had been ex ante, two ex post, and two simultaneously both ex ante and ex post briefings. It should be noted that in this period, no less than 184 Council meetings had taken place.

Ireland  217

ii.  Participation of the National Parliament in Adoption of EMU Secondary Law It was hoped that the decentralisation of scrutiny (ie, from the EU Scrutiny Committee to sectoral Oireachtas Committees) of draft EU legislation from 2011 onwards might improve how this work was done. However, the proportion of draft EU measures scrutinised has remained small123 and, the length of time spent considering EU scrutiny issues by sectoral committees in public session has remained minimal. Such issues are often of little political value or interest, and sectoral committees already have a large workload concerning domestic matters, which are prioritised. Committee members’ attention is, in any case, focused on electorally-valuable constituency work. EU scrutiny is dealt with quickly at the beginning of sectoral committee meetings largely dedicated to other purposes and normally producing a decision that according to a predetermined list of measures warrants no further scrutiny. Occasionally, a determination to seek further details is made or sometimes an observation that the relevant decision has already been taken at EU level. Oireachtas participation in the ‘political dialogue’ with the Commission has also functioned at a low level. So has that of highly active parliaments, like the Finnish Eduskunta or the Danish Folketing but these latter parliaments are highly active in other areas.124

iii.  Country-Specific Techniques of Implementing Secondary Legislation, Especially of Directives: Laws, Administrative Regulations, Others EU directives can be implemented by legislation, but it is more frequent for them to be implemented via ministerial regulation. One of the main vehicles for this has been section 3 of the European Communities Act 1972 (as amended).125 Section 2(1) of the 1972 Act126 provides that the treaties governing the EU, acts adopted by EU institutions,127 and acts adopted by bodies competent under those treaties128 be binding on the state and part of its domestic law.129 Section 3(1) of the 1972 Act then goes on to provide that a Minister of State may make regulations for enabling this provision to have full effect. Under section 3(2) of the 1972 Act, the legal impact of such regulations may be considerable, since they may contain such incidental, supplementary and consequential provisions as appear to the Minister making the regulations to be necessary for the purposes of the regulations (including provisions repealing, amending or applying, with or without modification, other law, exclusive of this Act).

Since 2007, such regulations may create indictable offences.130 In practice, large numbers of statutory instruments (SIs) are adopted under section 3(1) of the 1972 Act. In the (randomly-chosen) year 2015, there were 139 (22 per cent of all 642 SIs adopted that year).

123 See Barrett, The Evolving Role, 224ff. 124 Barrett, The Evolving Role, 192–93, 304–05. 125 It is not the only one. Ministerial regulations implementing EU law are sometimes adopted under powers granted by a statute regulating the relevant field. 126 Substituted by s 3 of the European Union Act 2009. 127 Other than acts adopted on the basis of Treaty provisions concerning the CFSP. (See s 2(1)(b) of the 1972 Act (as substituted by s 3 of the European Union Act 2009) and Art 275 TFEU.) 128 Other than acts adopted on the basis of the Treaty provisions relating to the CFSP. (See s 2(1)(d) of the 1972 Act (as substituted by s 3 of the European Union Act 2009) and Art 275 TFEU.) 129 Viz, under the conditions laid down in the Treaties. 130 See s 3(3) as substituted by s 2 of the European Communities Act 2007.

218  Gavin Barrett Under section 3A of the 1972 Act131 every [implementing regulation shall be laid before each House of the Oireachtas as soon as may be after it is made and, if a resolution annulling the regulation is passed by either such House within the next 21 days on which that House sits after the regulation is laid before it, the regulation shall be annulled accordingly but without prejudice to the validity of anything previously done thereunder.132

In practice, the Oireachtas exercises no real democratic oversight. Oireachtas members will generally only find out about SIs only if willing to trawl through the various measures ‘laid before the House’ by electronic delivery to the Oireachtas library. From the start, section 3A has been a dead letter. Many SIs with a significant connection to Ireland’s EU membership are also adopted each year under statutes other than the 1972 Act, and the system of control embodied in s 3A has no application to these. In 2015 (as already seen), 240 such SIs were adopted, 37 per cent of the total of 689 SIs made that year, and considerably more than the mere 139 (22 per cent of the total) adopted under the 1972 Act. Given its convenience, and the lack of systematic democratic control, it is unsurprising that Irish ministers have been using section 3(1) for decades to give effect to all kinds of rules, even when these rules ought arguably to have been implemented by statute. The drafting quality of such regulations, unchecked by any parliamentary control, has varied considerably.133

B.  Enforcement through the courts From about 1994, Irish case-law on the constitutional immunity clauses found in Article 29.4.6°, began to focus on the issue of the form of domestic law instrument used to implement EU law measures, and whether this choice of form itself could be immunised. In Meagher v Minister for Agriculture,134 the Supreme Court held [T]he power of regulation-making … contained in s.3 is prima facie a power which is part of the necessary machinery which became a duty of the State upon its joining the Community and therefore necessitated by that membership.135

This part of Meagher is significant as an authority that the ‘necessitated’ test does not involve a mere renvoi to the substance of EU law. The obligations of membership included factors going beyond the substantive obligations of European law: questions of practical possibility entered the equation, and the question of ‘necessitated’ was also related to the means by which European-level regulations were implemented. On the issue of whether the SIs, in this case, were valid, the Supreme Court delivered two judgments both of which, although in some respects contradictory, were agreed to by the three remaining Supreme Court judges. The result is that each may be taken to represent the opinion of four out of the five judges of the court.

131 In its present form, as inserted by s 3 of the European Communities Act 2007. 132 Emphasis added. 133 The European Communities (Safeguarding of Employees’ Rights on Transfer of Undertakings) Regulations, 1980 (SI No 306 of 1980) were one of the worst examples, transposing Directive 77/187/EEC so poorly that they subsequently had to be amended to avoid threatened Commission proceedings before the European Court of Justice. 134 [1994] 1 IR 329. 135 [1994] 1 IR 329 at 352.

Ireland  219 For Blayney J the question whether the use of a statutory instrument was necessitated depended on its appropriateness.136 Denham J, in contrast, reasoned that, … the test is whether the ministerial regulations under s.3 of the Act of 1972 are more than the mere giving effect to principles and policies of the said Act and the directives which are part of domestic law as to the result to be achieved.137

Meagher was followed by the Supreme Court ruling in Maher v Minister for Agriculture and Food,138 where the Supreme Court adopted a different approach. Keane CJ exemplified the general approach taken in all of the judgments, and, addressing the issue of whether proceeding by way of an SI ‘was in conflict with the exclusive legislative role of the Oireachtas under Article [15.2.1°]’,139 held [one can determine first whether it violates either Article 15.1 or the private property rights or both of them. If the latter course were adopted, and the conclusion were reached that no breach of the Constitution had been established, it would be unnecessary to consider whether enactment in the form of a regulation rather than by an Act was necessitated by the obligations of membership.140

Hogan et al cite Maher as authority for the proposition that the method of transposition of EU legislation could never be ‘necessitated’ for the purposes of what is now Article 29.4.6°.141 The shift in Maher away from the ‘necessitated’ clause (as compared to the ruling in Meagher) and towards a reading of Article 15.2.1° in apparent isolation from the former provision is of interest since it means that some of the constitutional burden of facilitating Ireland’s membership of the EU is now no longer carried by amendments to Article 29.4 specifically designed to facilitate that membership. Fennelly J identified the test of whether recourse to an SI would be precluded as being whether the scope of the discretion conferred by Community law in regulations which become part of national law was so independent of principles and policies laid down by those Community regulations, as to place the State in conflict with Article 15.2.1° of the Constitution.142

Nevertheless, in the subsequent High Court ruling in Sam McCauley Chemists v The Pharmaceutical Society of Ireland,143 McCracken J (ultimately upheld on appeal by the Supreme Court144) viewed the ‘necessitated’ clause as being necessary to his decision in this case (which was to uphold the use of the 1991 statutory instrument to amend statute law),145 specifically referring to the rulings of both Blayney J and Denham J in Meagher.146 Thus the irrelevance of the ‘necessitated’ clause to methods of transposition of EU law had clearly not yet gained universal judicial acceptance. In contrast, in Browne v Attorney General,147 the Supreme Court seemed to indicate that whether or not the substance of a measure is necessitated, full compliance with all Irish constitutional procedural rules will be required.148 136 Sterck has described this as equating ‘necessitated’ with ‘appropriate’. 137 [1994] 1 IR 329 at 366. 138 [2001] 2 IR 139 at 147. 139 [2001] 2 IR 139 at 181. 140 Ibid. 141 Hogan et al, Kelly: The Irish Constitution, 605. 142 [2001] 2 IR 139 at 254. 143 [2008] 1 IR 16. 144 The plaintiffs’ appeal was dismissed and the order of the High Court affirmed by order of the Supreme Court (Murray C J, Denham, Hardiman, Fennelly and Lavan J J) dated 13 October 2006. 145 [2008] 1 IR 16 at 24. 146 [2008] 1 IR 16 at 21–22. 147 [2003] 3 IR 205. 148 [2003] 3 IR 205 at 253 and 254–55.

220  Gavin Barrett

V.  Resulting Relationship between EMU-Related Law and National Law EMU-related law has been accommodated in the Irish legal system. Insofar as concerns EU law measures, the initial constitutional amendment made at the time of the Treaty of Maastricht (incorporating both an authorisation to ratify the TEU and a constitutional immunity clause) has been adequate to prevent constitutional difficulties arising. The economic crisis which struck Europe from 2008 on created new challenges. Its resolution required recourse to non-EU treaties such as the TSCG and the ESM Treaty. As non-EU treaties, these flew under the Article 29.4.6° shield of constitutional immunity and were, therefore, exposed to attack by a variety of constitutional provisions. The challenge of accommodating the TSCG could only be met by adjusting the EMU-related constitutional shield for the first time since 1993, which was effected by the 2012 Constitutional amendment with its accession and immunity provision. The challenge posed by another non-EU measure – the ESM Treaty was met by effectively relaxing the unrealistically strict Crotty test of the sovereignty clause in the Irish constitution in the Pringle case. The challenges presented by the radical measures needed to save the Irish economy from the economic crisis in which it had landed were met by the Supreme Court deeming acceptable extraordinarily broad delegations of power (a) made to ministers to intervene in the economy in Collins and (b) made to the National Asset Management Agency (NAMA) in acquiring property in Dellway Investments. The Irish legal system has also had some impact at European level during the crisis. One way in which this happened was through the preliminary reference procedure: the Pringle reference by the Irish Supreme Court led to a hugely significant ruling by the CJEU. Furthermore, Particular provisions of the TSCG may have been designed to cope with the dangers presented by the need of Ireland (and/or other states) to hold a referendum before ratifying it. Thus eg, Article 14(2) provided that the TSCG would enter into force on 1 January 2013, provided merely that 12 Contracting Parties whose currency is the euro had deposited their instrument of ratification, for those 12 states. Unlike an EU treaty then, unanimous ratification was not required. The specific observation in the Preamble to the Compact that the granting of financial assistance in the framework of new programmes under the ESM would be conditional on the ratification of the TSCG by the state concerned was also in all likelihood inserted to incentivise a positive vote in an Irish referendum. If this was the intention, it probably succeeded. A note may be added on the constitutionality under Irish law of recent EU proposals. The December 2017 Commission proposals to enhance fiscal discipline, medium-term national budgetary orientation and convergence to prudent levels of public debt149 and strengthen the link between European Semester priorities and the EU budget by enhancing the capacity for cohesion policy to support structural reforms150 would appear to be well within the Article 29.4.6° constitutional immunity clause protecting laws enacted, acts done or measures adopted by the EU or EU institutions or bodies competent under the Treaties. The Commission proposal for a Council

149 European Commission, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States. 150 European Commission, COM (2017)826 Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006.

Ireland  221 Regulation on a European Monetary Fund based on Article 352 TFEU appears similarly to be immune from constitutional attack.151 The December 2017 proposal for a Council regulation (also based on Article 352 TFEU) establishing a European Monetary Fund seems similarly safe. Some of this regulation would repeat what is already in the non-EU ESM Treaty, which despite enjoying no protection under Article 29.4.5° or 6° was held in Pringle to require no referendum. The new budgetary instruments for a stable eurozone within the Union framework proposed in the Commission’s December 2017 communication would also appear constitutionally safe: nothing outside the existing Treaty framework appears to be envisaged.152 However, the European Parliament resolution of February 2017 on the budgetary capacity for the eurozone,153 if implemented, would be a different matter since it specifically envisages Treaty changes in the long and medium term (without specifying why). However, mooted reforms include eg, a finance minister and treasury within the Commission and reform of the interparliamentary conference in Article 13 of the Fiscal Compact to give it more substance. The vagueness of the resolution makes it unclear that all envisaged Treaty change involving reform of EU Treaties would fall within the Crotty test for coverage by Article 29.4.5°. Some mooted Treaty change under the resolution might not be to EU treaties. Either way, it would risk transgressing one or more of the above rules and requiring a constitutional referendum. Interestingly, however, the Commission’s own December 2017 Communication, A European Minister Of Economy And Finance 154 specifically envisaged that the introduction of such a position would be within the existing Treaties, which would mean it should be constitutionally safe under Article 29.4.5° or 6°.

References Anon, ‘Healy-Rae Outlines Price of Support’, Irish Times, 4 November 2010. Articles of Agreement for a Treaty between Great Britain and Ireland, 1921. G Barrett, A Road Less Travelled – Reflections on the Supreme Court Rulings in Crotty, Coughlan and McKenna (No 2) (IIEA, Dublin, 2011). G Barrett, ‘Building a Swiss Chalet in an Irish Legal Landscape? Referendums on European Union Treaties in Ireland and the Impact of Supreme Court Jurisprudence’ (2009) 5 EuConst, 32. G Barrett, EMU – The Third Stage. An Examination of the Treaty and non-Treaty Basis of Economic and Monetary Union (Institute of European Affairs, 1997). G Barrett ‘Ireland’ in Stefan Griller et al (eds), National Constitutions and EU Integration (Oxford, Hart Publishing, 2020 forthcoming). G Barrett (ed) Legal Consequences of the Single Currency, Report to 19th FIDE Conference in Helsinki, 1–3 June 2000, 47f. G Barrett, ‘The Evolving Door to Europe: Reflections on an Eventful Forty Years for Article 29.4 of the Irish Constitution’ (2012) 48 Irish Jurist, 132. M Brennan, ‘Lowry’s Secret Health Deal with FG’s Harris’, Sunday Business Post, 28 August 2016. British-Irish Agreement of 10 April 1998 (‘the Good Friday Agreement’). M Cahill, ‘Constitutional Exclusion Clauses, Article 29.4.6 and the Constitutional Reception of European Law’ (2011) 34 DULJ 74. M Carolan, ‘Marriage Referendum Appeals Rejected by Supreme Court’, Irish Times, 17 September 2015. J Casey, Constitutional Law in Ireland, 1st edn (1987).

151 European Commission, COM (2017)827 Proposal for a Council Regulation on the establishment of the European Monetary Fund. 152 See European Commission, COM (2017)822 Communication on new budgetary instruments for a stable euro area within the Union framework. 153 European Parliament resolution of 16 February 2017 on budgetary capacity for the eurozone (2015/2344(INI)). 154 European Commission, COM (2018) 823 Communication on a European Minister of Economy and Finance.

222  Gavin Barrett S Collins, ‘Brendan Howlin to Begin Unwinding Legislation on Pay Cuts’, Irish Times, 30 October 2014. J Cotterill, ‘Why It Matters That the Irish promissory Notes are Gone’, Financial Times, 7 February 2013. Constitution of the Irish Free State (1922). Constitution of Ireland (Bunreacht) (1937). Constitution of the Irish Free State (Saorstát Eireann) Act, 1922. S Coutts, ‘The Oireachtas and the Eurocrisis: Empowerment through Crisis’ (2018) 54 Irish Jurist, 60. F de Londras and D Gwynn Morgan, ‘Constitutional Amendment in Ireland’ in X. Contiades, Engineering Constitutional Change: A Comparative Perspective on Europe, Canada and the USA (London, Routledge, 2012). B Doherty, ‘Land, Milk and Freedom – Implementing Community Law in Ireland’ (2004) 11 IJEL 141. D Donovan and A Murphy, The Fall of the Celtic Tiger: Ireland and the Euro Debt Crisis (Oxford, Oxford University Press, 2013). European Commission, COM (2017)822 Communication on new budgetary instruments for a stable euro area within the Union framework. European Commission, COM (2018) 823 Communication on a European Minister of Economy and Finance. European Commission, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States. European Commission, COM (2017)826 Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006. European Commission, COM (2017)827 Proposal for a Council Regulation on the establishment of the European Monetary Fund. European Communities Act 1972. European Communities Act 2007. European Communities (Safeguarding of Employees’ Rights on Transfer of Undertakings) Regulations, 1980 (SI No 306 of 1980). European Union Act 2009. D Fennelly, ‘Crotty’s Long Shadow: the European Union, the United Nations and the Changing Framework of Ireland’s International Relations’, paper delivered at conference, The Irish Constitution: Past, Present and Future, Honourable Society of the Kings Inns, Dublin, 28–29 June 2012. Fiscal Responsibility Act 2013. P Gallagher, ‘The Constitution and the Community’ (1993) 2 Irish Journal of European Law, 129. S Henchy, ‘The Irish Constitution and the EEC’ (1977) 1 DULJ, 20. G Hogan, ‘The Supreme Court and the Single European Act’ (1987) 22 Irish Jurist, 55. G Hogan, A Whelan, Ireland and the European Union: Constitutional and Statutory Texts and Commentary (London, Sweet and Maxwell, 1995). G Hogan, G Whyte, D Kenny and R Walsh, Kelly: The Irish Constitution, 5th edn (Dublin, Bloomsbury, 2018). P Honohan, Currency, Credit and Crisis (Cambridge, Cambridge University Press, 2019). P Leahy, ‘Halligan Accuses Noonan of Reneging on Waterford Hospital Promises’, Irish Times, 8 September 2016. P Leahy, ‘Public sector pay body to meet Minister as work begins’, Irish Times, 19 November 2016. J Lee and D McConnell, Hell at the Gates: The Inside Story of Ireland’s Financial Downfall (Blackrock, Mercier Press, 2016). D MacGuill, ‘One Year In, Is This Really a ‘Do-Nothing’ Dáil?’, Journal.ie, 19 March 2017. Andreas Maurer and Wolfgang Wessels ‘National Parliaments after Amsterdam: From Slow Adapters to National Players’ in Andreas Maurer and Wolfgang Wessels (eds) National Parliaments on their Ways to Europe: Losers or Latecomers? (Baden-Baden, Nomos, 2001). B McMahon and F Murphy, European Community Law in Ireland (Dublin, Butterworth, 1989). D O’Donovan, ‘IMF Conditionality, the Irish Constitution and the Need for a Dáil Vote on the Bailout Agreement’, Human Rights in Ireland website, 22 November 2010. Oireachtas Joint Committee on European Union Affairs Assessment of Current Structures for Oireachtas Scrutiny of EU Affairs (Dublin, Oireachtas, 2014).

Ireland  223 Oireachtas Joint Sub-Committee on the Review of the Role of the Oireachtas in European Affairs Report (Dublin, Oireachtas, 2010). Oireachtas Sub-Committee on Ireland’s Future in the European Union, Ireland’s Future in the European Union: Challenges, Issues and Options (Dublin, Oireachtas, 2008). D O’Keeffe, ‘Preliminary Deference: The Supreme Court and Community Law’ (1983) 5 DULJ, 286. Regulation (EU) 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area [2013] OJ L 140. D Rossa Phelan, Revolt or Revolution – The Constitutional Boundaries of the European Community (Dublin, Round Hall, 1997). M Sandbu, Europe’s Orphan: The Future of the Euro and the Politics of Debt (Princeton, New Jersey, Princeton University Press, 2017). J Sterck, The Constitutional Identity of Member States and the Primacy of European Union Law: A Comparative Study of Ireland and France (unpublished PhD thesis, University College Dublin, 2013). J Temple Lang, ‘The Widening Scope of Constitutional Law’ in D Curtin and D O’Keeffe (eds.), Constitutional Adjudication in European Community and National Law (Dublin: Butterworth, 1992). A Whelan and L Heffernan, ‘Ireland the United Nations and the Gulf Conflict: Legal Aspects’ (1991) Irish Studies in International Affairs, 115. K Whelan, ‘Ireland’s Promissory Note Deal’, Forbes.com, 11 February 2013.

224

9 Greece Further EMU Steps Require a Democratic Eurozone Architecture LINA PAPADOPOULOU

Abstract: The Greek Constitution does not include a very long or analytical section on economic and fiscal matters. It recognises the role of the EU (see Art 28 Const) and expressly allows for Greece’s participation in the EMU, despite its constitutionally enshrined competence to issue currency (Art 80 Const and interpretative clause) and the government’s competence to direct economic policy as part of general policy (Art 82 Const). More specifically, Article 28 Const allows for the transfer of constitutionally vested competences to international organisations through the law (either supranational or intergovernmental cooperation) when this serves an important national interest requiring a qualified majority (three-fifths) of the total number of the MPs. Moreover, limitations on the exercise of national sovereignty are allowed, as long as they are dictated by a significant national interest, based on equality and reciprocity, and they do not infringe upon the protection of human rights and the democratic principle. This provision (Art 28 Const) sets constitutional limits to further EMU integration and allows for a systemic judicial control on whether these conditions are respected in a future EMU architecture, that is, whether the entity (EU) in favour of which Greece might limit the exercise of its sovereignty is democratically designed and protects fundamental rights, at least in their core. Key words: Article 28 GrConst, Article 36 GrConst, Article 80 GrConst, Article 110 GrConst, Greece, Greek Constitution, tacit changes in Greek Constitution, EU and Greek legal order, EMU and Greek legal order, Memoranda of Understanding, judicial review of unconstitutionality in Greece, austerity measures in Greece.

I.  Main Characteristics of the National Constitutional System, and Constitutional Culture A.  Constitutional System Greece has a formal, written, relatively rigid and codified Constitution (Const) that enjoys supremacy over all other national sources of law. The basic constitutional principles (parliamentary republic, Art 1; rule of law, Art 25; separation of powers, Art 26; and social state, Art 25),

226  Lina Papadopoulou all expressly stated in the Constitution (except the principle of representation which is deduced by means of interpretation), are considered to have equal legal value with the rest of the constitutional provisions, yet also have an interpretative function. The ‘hard core’ (eternity clause) includes these principles, supplemented by those relating to human dignity, equality, the holding of public offices only by Greeks, the prohibition of titles of nobility or distinction, the free development of one’s personality and personal liberty, religious freedom and the division of powers. Constitutional revision is a lengthy and laborious process, as it requires the approval of two consecutive parliaments with a large, three-fifths, majority in the first parliament and an absolute majority of all members in the second parliament, or vice versa. Under this constraint, the 1975 Constitution has been amended four times: in 1985 (limiting the president’s competences); in 2001 (enhancing human rights, transparency and independent authorities), in 2008 (with minor politically insignificant changes, mainly the abrogation of professional incompatibility for parliamentarians). A procedure to revise the Constitution started in the autumn of 2018 and was completed after the parliamentary elections of July 2019, in November 2019. However, none of the constitutional changes which have been proposed and passed by the parliamentary majority would revise the key features of the so-called Greek ‘economic constitution’ or has to do with the EMU. Greece is constituted as a democratic and unitary unicameral parliamentary state with a Head of State (president) who is elected by the 300-member parliament. The prime minister is the main source of political power due to the parliamentary character of the constitutional regime and the president’s limited non-political and constitutionally enumerated competences. Due to the polarised political system, governments used to be formed by only one party until the outbreak of the recent fiscal crisis when coalition governments needed to be formed (2011–19).

B.  The Judiciary The Greek judicial system (Art 93(1) Const)1 is bifurcated: one branch consists of the courts for civil and criminal matters, with the same judges serving in both types of courts. The Supreme court in this branch is called the Areios Pagos (AP). The second branch comprises the ordinary administrative courts and the Supreme court in this division is called the ‘Council of State’ (CoS; in Greek, Symvoulio tis Epikrateias, Art 95 Const).2 There are also a few special courts. Noteworthy is the Court of Audit (CoA, Art 98 Const), which functions both as a court and the major auditing authority of the administration. Also, there is a ‘Supreme Special Court’ (Art 100 Const), which is not a permanent court and has particular competences, including a narrowly defined competence to abolish unconstitutional legal provisions. This is the only court that has the competence in the Greek legal order to annul statutes. Finally, there is also a Special Court responsible for adjudicating alleged criminal acts committed by members of the government and the president of the Republic (Art 86(2) Const) composed of six CoS members and seven AP members).3

1 See Philippos Spyropoulos and Theodore Fortsakis, Constitutional Law in Greece (Alphen aan den Rijn, Kluwer Law International, 2009) 194ff. 2 See Feloktemon Arnaoutoglou, ‘Grèce: Le Conseil d’Etat’ (Greece: The Council of State) in J Iliopoulou-Stranga (ed), Cours suprêmes nationales et cours européennes: concurrence ou collaboration? (Brussels, Bruylant, 2007) 179. 3 Extraordinary courts for a state of siege (emergency) are provided for in Art 48 Const. Also, of a specialised nature are the juvenile courts (Art 96(3) Const), the military, naval and air-force courts and the prize courts (Art 96(4) Const). There is also a special court for suits against judicial functionaries for ‘faulty wrongful judgment’ (Art 99 Const), which – with an enhanced composition – also functions as a judges’ salary court (see also Art 88(2) Const). The latter, like some of the other special courts, are staffed not only by judges but also by other functionaries (eg, Law School Professors).

Greece  227 The particularity of the Greek judicial system lies in the lack of a Constitutional Court. All courts, of all instances, are constitutionally empowered (Art 93(4) Const) to disapply any legal provision they deem to be unconstitutional, as long as it plays a decisive role in the case they have before them, and their decision is based on the specific facts (the diffuse, incidental, concrete and declaratory character of the judicial review of unconstitutionality).4 Notably, the chambers of the three highest courts (CoS, AP and CoA) are obliged (Art 100(5) Const) to refer to the respective Plenaries any legal provisions they consider to be unconstitutional. Nevertheless, some new legislative initiatives lead to the concentration of the judicial control of constitutionality to the CoS Plenum.5 Thus, the latter, also influences the jurisprudence of all the lower administrative courts,6 although this Court can only declare the unconstitutionality of a legal norm but not annul it.

C.  Constitutional Culture The Constitution is often invoked not only in the courts but also within the framework of political debate. Especially since the outbreak of the economic crisis, and mostly during the first five years of the crisis (2010–14), political argumentation has often taken on a constitutional hue. The allegation of unconstitutionality against the signed Memoranda of Understandings (MoU) and almost all the laws implementing them has been used both as a political accusation and legal argument against the cuts in wages and pensions, and the abolition of social benefits. Both individual citizens and collective entities (such as professional organisations, trade unions etc) have used litigation to fight the austerity measures, often mobilised by constitutional lawyers and law professors who have often appeared on TV and stressed the unconstitutionality of the measures. In this case law, as explained below, the Greek courts have exhibited a rather restrained stance and deferred to the government, especially in the first phase of the crisis7 (lasting approximately four years) because the crisis was unexpected (for the vast majority of the population) and based on an extended notion of national interest consisting in the avoidance of bankruptcy.

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  The Constitutional Foundations for Accession to the EU and EMU i.  Article 28 Const as the Foundation for EC/EU Membership EU membership is legally based on the conclusion of international agreements, which have as their constitutional foundations Articles 2(2),8 289 and 3610 Const.11 According to Article 28(1) Const, 4 Cf Vassilios Skouris, ‘Constitutional Disputes and Judicial Review in Greece’ in C Landfried (ed), Constitutional Review and Legislation (Baden-Baden, Nomos, 1988) 177. 5 See Arnaoutoglou, ‘Grèce’, 179. 6 Cf Lina Papadopoulou, ‘Greece’ in Stefan Griller et al (eds), National Constitutions and EU Integration (Oxford, Hart Publishing, 2020 forthcoming). 7 Xenophon Contiades and Alkmene Fotiadou, ‘On Resilience of Constitutions. What Makes Constitutions Resistant to External Shocks?’ (2015) 9 Vienna Journal of International Constitutional Law, 3 speak about a phase of ‘constitutional inertia’ and the courts ‘submissive stance’. 8 On Art 2(2) Const, see Petros Miliarakis, Public International Law and Hellenic Constitution (Athens, Livani Publishing Organization, 2008) 79ff. 9 Art 28(1) Const: ‘The generally recognised rules of international law, as well as international conventions as of the time they are ratified by statute and become operative according to their respective conditions, shall be an integral part of domestic Greek law.’

228  Lina Papadopoulou international law rules become ‘an integral part of domestic Greek law’ after their ratification, which acts as a precondition of their validity (thus implying a dualist model12). This constitutional provision has accommodated all treaties and played a vital role in the acceptance of European law. It is still of importance, especially given the fact that many of the steps now being taken towards a European economic constitutionalism use treaties as an instrument, beyond EU law. Moreover, treaties, after their ratification, and generally accepted rules of international law, not only form an integral part of domestic law but they also prevail over all prior and subsequent statutory provisions.13 This constitutionally embedded hierarchy of legal sources results in the judicial control of the conventionality of all statutory provisions (formal laws, ie, those voted upon by the parliament) and also substantive laws (such as presidential decrees, ministerial decisions, etc). Where a court declares a formal law to be ‘unconventional’ or unconstitutional, it can refrain from applying it, but it cannot annul it. However, no clear reference exists as to the relationship between international (including EU) law and the Greek Constitution concerning their hierarchical taxonomy. Both the accession of the Republic of Greece to the EC/EU (Law 945/1979) and all successive amendments to the Treaties have been based on Article 28 Const (sometimes with reference to paragraph 1 and usually without distinguishing between its three paragraphs),14 which has, thus, served as ‘the European clause’ of the Greek Constitution establishing Greece’s ‘open statehood’.15 Accordingly, secondary EU law after the accession has been based on Article 28(2) Const, which stipulates that ‘competences provided by the Constitution may by treaty or agreement be vested in agencies of international organisations’.16 The same constitutional provision (Art 28 Const) was used as a basis for Greece to become a member of the eurozone in 2001. Although there was no doubt that this Article was the most suitable and sufficient constitutional basis for Greece’s European integration, in a 2001 constitutional revision an ‘interpretative clause’ was added to Article 28 stipulating that ‘Article 28 constitutes the foundation for the participation of the Country in the European integration process’. At the same time, a second ‘interpretative clause’ supplemented Article 80 Const17 so that Greece’s accession to the EMU and its adoption of the euro could be constitutionally accommodated. This is interesting since most steps taken by previous EC/EU Treaties had been accommodated through a silent, tacit alteration of the Greek Constitution.18 In this particular case, however, the 10 According to Art 36(2) Const, ‘[c]onventions on trade, taxation, economic cooperation and participation in international organizations or unions and all others containing concessions for which, according to other provisions of this Constitution, no provision can be made without a statute, or which may burden the Greeks individually, shall not be operative without ratification by a statute voted by the Parliament’. 11 See in more detail Papadopoulou, ‘Greece’. 12 Cf Krateros Ioannou, ‘Greece’ in R Blackburn and J Polakiewicz (eds), Fundamental Rights in Europe. The European Convention on Human Rights and its Member States, 1950–2000 (Oxford, Oxford University Press, 2001) 358; İbrahim Özden Kaboğlu, Stylianos-Ioannis Koutnatzis, ‘The Reception Process in Greece and Turkey’ in H Keller and A Stone Sweet (eds), A Europe of Rights – Assessing the Impact of the ECHR on National Legal Systems (Oxford, Oxford University Press, 2008) 451, 462. 13 Arghyrios Fatouros, ‘International Law in the New Greek Constitution’ (1976) 70 The American Journal of International Law, 492, 501ff. 14 See in detail Papadopoulou, ‘Greece’. 15 Theodora Antoniou, Europäische Integration und griechische Verfassung. Ein Beitrag zur Auslegung des Artikel 28 der griechischen Verfassung von 1975 (Frankfurt am Main, Bern, New York, Peter Lang, 1985) 7f and 157. 16 See the interpretation of this ruling in CS 5410/1987 and 3312/1989. 17 Art 80: (1) No salary, pension, subsidy or remuneration shall be entered in the state budget or granted unless it is provided for by statute concerning the organisation or other special statute. (2) The minting or issuing of currency shall be regulated by law. Interpretative clause: Para 2 does not impede the participation of Greece in the process of the EMU, in the wider framework of European integration, according to the provisions of Art 28 Const. 18 See more analytically, Papadopoulou, ‘Greece’; Also, Cf Lina Papadopoulou, ‘Die implizite Änderung der griechischen Verfassung durch das EU-Recht’ (2014) 74 ZaöRV 141, 161; Antonis Manitakis, In Greece, Constitutional Changes Without

Greece  229 constitutional legislator explicitly recognised ‘the participation of Greece in the process of the EMU, in the wider framework of European integration, according to the provisions of Article 28 Const’.19 These twin interpretative clauses resolved the whole discussion and left no constitutional gaps, adding adequate legal bases for all further steps of European integration. They did not provide further impediments or limits to European integration than those already enshrined in Article 283 Const (which will be further referred to below). Notably, a third Article of the Constitution was also modified in the 2001 revision. In particular, a new paragraph (No 8) was added to Article 70 foreseeing that ‘[t]he Standing Orders of Parliament shall specify the manner in which the Parliament is informed by the Government on issues being the object of regulation in the framework of the European Union, and debates on these’. This provision aimed at facilitating the provision of information and parliamentary debate on EU issues regulated within the Council. In other words, it aimed at assisting the representative body’s role of monitoring the actions of the government when the latter was acting at the EU level, either through its ministers or prime minister in the European Council.

ii.  The Economic and Political Underpinnings of Greece’s EMU Membership Before attempting a critical examination of the constitutional debate, it will be instructive to place it into the economic and political context. Greece entered the eurozone, after a European Council decision on 20 June 2000, in Santa Maria da Feira, Portugal, based on both political and economic criteria.20 For the first time in Modern Greek history, public finances were controlled in order not to produce deficits and accomplished a nominal and real convergence with the other eurozone countries. The state of the economy had improved during the second decade of its European membership after the completion of a macroeconomic stabilisation programme and a series of structural reforms.21 These had allowed Greece to consolidate its public finances and adapt to the convergence criteria for fiscal and monetary policy that needed to be fulfilled so that the country could join the EMU. Interest rates, nominal and real, fell to levels that were unknown in the Greek economy (from around 11.5 per cent in 1998 to less than 6 per cent in 2001). This accession to the EU hardcore, the eurozone, was a promising development not only in economic but also in political terms, as it seemed that it would guarantee stability and growth. However, when it came to productivity, the country was unprepared to face the increased competition that a common market would cause to its state-centred economy, which lacked economic and other reforms. The goals of full employment and the enhancement and consolidation of the social state, especially in terms of reducing the costs of the insurance system, were never achieved. In particular, Greece failed to connect its employment policies with development and productivity, which would have been the key to keeping the fiscal consolidation intact. Distortions continued, particularly in the area of government intervention and aid, and the functioning of the labour market, capital and money. More specifically, there were still – at the time of Greece’s accession to the EMU – state monopolies or oligopolies in telecommunications, transport and energy, as well as closed professions. All these existed despite the fact that a process of adaptation of the Greek market and its liberalisation had already started during the second decade of Constitutional Revision, 14 March 2016 available at www.huffpost.com/entry/constitutional-changes-wi_b_9459136? guccounter=1. 19 See Art 80 Const. 20 See, however, the Eurostat Report on the revision of the Greek government deficit and debt figures, Luxembourg, 22 November 2004, according to which the deficit in 1999 was 3.4% instead of 1.8% (the deficit criterion, means that the annual general government deficit should not be higher than 3% of GDP for a country to join the eurozone). 21 Elisabeth Oltheten, George Pinteris and Theodore Sougiannis, ‘Greece in the European Union: policy lessons from two decades of membership’ (2003) 43 The Quarterly Review of Economics and Finance, 774, 776.

230  Lina Papadopoulou Greece’s membership of the EC/EU from 1991 onwards. Last but not least, the public sector, including the administration and the courts, suffered – and still does – from excessive bureaucracy and poor organisation, sometimes even corruption, causing inconvenience to the citizens and considerable delays in productive investments.22 A long series of structural reforms were still needed, reforms which were never carried out by the time the crisis broke out in 2009. At that time, Greece deliberately misreported its debt figures to the EU.23 The Bank of Greece, the country’s central national bank, founded in 1927, in accordance with the Geneva Protocol, and responsible for the country’s monetary policy, was accordingly modernised and gained independence,24 in order to participate in the eurozone’s European System of Central Banks. Its independence was a novelty for the national record of extended governmental interventions, which are still occurring. According to Article 29 of its Statutes (2013 edition, Part IV), ‘[t]he Governor and the Deputy Governors shall be appointed for a six-year term by Presidential Decree, upon a proposal by the Council of Ministers, on a proposal from the General Council of the Bank’. Until the outbreak of the sovereign debt crisis in 2010, the wider political consensus concerning Greece’s accession to the EMU allowed for all the steps to be taken without significant political debate. Consequently, so far, no Treaty changes have ever failed in the Greek parliament since the ruling parties have always been in favour of further integration. This has always (except perhaps in the case of Greece’s accession in 1981) been the common topos of both the right-wing ‘New Democracy’ and the ‘Panhellenic Socialist Movement’ (PASOK),25 mostly because Greece had been one of the main beneficiaries of EU funds for economic and social cohesion. Notably, EU economic supervision, although far from adequate at that time, helped in the modernisation of the Greek economy. During the 1990s, structural reforms took place, primarily in areas where the EU adopted common policies, such as the banking and financial markets. Therefore, the allocation of EU funds on the one hand and, on the other, Greece’s improved ability to absorb them during the 1990s boosted the economy’s growth and significantly strengthened the country’s infrastructure.26 At the same time, at the political level, they created a positive political climate in favour of Greece’s accession to the EMU, as the common currency was seen by most politicians and ordinary people as a way of strengthening and consolidating the well-being of the Greek people. This political approbation of all the steps leading up to accession to the EMU silenced any legal objections there might have been against economic and monetary integration. There were only a few constitutional objections,27 which were not widely heard since there were no (significant) political objections. The political accord undermined the autonomy of legal argumentation; a silent and informal transformation of the normative meaning of the Constitution took place to accommodate the new economic and monetary union. Equally, the (formal) revision of the

22 Cf George Alogoskoufis, ‘The Two Faces of Janus: Institutions, Policy Regimes and Macroeconomic Performance in Greece’ (1995)10 Economic Policy, 149. 23 European Commission, Report on Greek government deficit and debt statistics. Brussels, 8 January 2010. 24 Its statute was amended by the decisions of the General Meeting of its Shareholders (22 December 1997 and 25 April 2000) ratified by Laws 2609/11 May 1998 and 2832/13 June 2000 respectively, to meet the requirements of the TEU. 25 Cf Christoforos Vernardakis and Bülent Temel, ‘Effects of Economic and Monetary Union on the Greek Political System: Dimensions of the Current Crisis’ in B Temel (ed), The Great Catalyst – European Union Project and lessons from Greece and Turkey (Lanham, Lexington Books, 2014) 83, 86. 26 Elizabeth Oltheten, George Pinteris and Theodore Sougiannis, ‘Greece in the European Union’, 797ff. 27 See Julia Iliopoulos-Strangas, ‘Constitution hellénique et intégration européenne’ in Association des Constitutionnalistes Grecs / Association française des Constitutionnalistes (ed), Défense nationale – Intégration européenne: Les réponses constitutionnelles (Athens, Brussels, Bruylant, 2002) 71, 90ff.

Greece  231 Constitution was realised in 2001 in a political climate of broad agreement on the progress of the EMU and Greece’s participation in it.

B.  Rules Governing Closely Related Instruments Outside the EU Legal Order, Especially the ESM and the Fiscal Compact i.  The Sovereign Debt Crisis and the Bail-out Mechanism This crisis broke out in 2009, although it had been latent since 2005. On 2 May 2010 the bilateral Greek support facility was created, and the European Financial Stability Facility (EFSF) followed shortly afterwards (9 May 2010) to preserve financial stability in Europe by providing financial assistance to eurozone Member States in financial difficulties. The new ‘European economic governance’ (based on the EU legislation Two Pack and Six Pack, the European Semester and the intergovernmental TSCG) coincided with the conclusion of the Memoranda of Understanding (MoU), aiming to prevent a disorderly default of the Greek state. Given that the same constitutional provision accommodates both international laws or treaties and European law, the form makes no difference concerning the procedure that needed to be followed. Consequently, integration mechanisms generated outside the EU legal order were also accommodated by Article 28 Const. It is, however, worth attempting to take a closer look at the events that changed the future of Greece and also perhaps the eurozone, given the fact that the Greek crisis fuelled structural changes in the EMU architecture, especially those promoting the EU, next to the already realised Monetary one. In early 2010, the Greek state found itself unable either to finance the current deficit or refinance its debt or pay its government bonds ending the following year. It faced very high interest rates on its government bonds compared to Germany. In the midst of this severe crisis and on the basis of the Greek government’s request for assistance, the first ‘Memorandum of Understanding’ was signed between Greece and its creditors on 8 May 2010 (implemented through Law 3845/2010).28 It included the Greek Loan Facility Agreement, an international agreement between the Hellenic Republic and the other 15 eurozone countries aiming at providing Greece with financial assistance in the form of a loan amounting to 80 billion euro, and the ‘Stand-by Agreement’ with the IMF for another 30 billion euro. Five days later, the Law 3847/2010 (para 9 of the one single Article) authorised the Finance Minister to sign the loan agreements for Greece without ratification by the Greek parliament, which would only be informed on the relevant agreements. This authorisation was considered to be contrary to Article 36 Const, at least concerning the agreement with the other eurozone states if not the one with the IMF.29 The austerity measures taken to deal with the crisis reversed what had hitherto been a positive political stance towards both the EU and the EMU. These measures triggered passionate political and legal debates causing new and deepening old dichotomies, as well as legal debate since the political disagreement was also brought before the courts. Whereas the previous political 28 For an analysis of the Law 3845/2010 and the Loan Facility Agreement, focusing on their effect in the national legal order see Kostas Chryssogonos and Georgios Pavlidis, ‘The Greek Debt Crisis: Legal Aspects of the Support Mechanism for the Greek Economy by Eurozone Member States and the IMF’ in A Bitzenis, I Papadopoulos and V Vlachos (eds), Reflections on the Greek Sovereign Debt Crisis: The EU Institutional Framework, Economic Adjustment in an Extensive Shadow Economy (Cambridge, Cambridge Scholars Publishing, 2013) 275, 281. 29 Kostas Chryssogonos and Stylianos-Ioannis Koutnatzis, ‘Die finanzielle Tragödie Griechenlands aus verfassungsrechtlicher und institutioneller Sicht: Feudalistische Grundstrukturen hinter demokratischer Oberfläche?’ (2012) 60 Jahrbuch des Öffentlichen Rechts der Gegenwart, 402, 404.

232  Lina Papadopoulou acceptance, based on national and consequently private profit, had silenced any constitutional concerns, the political opposition to the crisis and austerity measures multiplied and proliferated the constitutional objections to any further steps in the EMU process. In the fiscal crisis era, both subsequent main opposition parties (the conservative New Democracy, in 2010–11) and SYRIZA (Coalition of the Radical Left, a leftist populist party, in 2012–14), but also minor parties (the ‘Greek Communist Party’, the neo-Nazi ‘Golden Dawn’ and the right-wing populist ‘Independent Greeks’ since 2012) bitterly opposed the measures taken in 2010–11 by the governing Socialist Party (PASOK) to avert a disorderly bankruptcy. However, both parties (New Democracy and SYRIZA) later became supporters of these measures when they gained power. For New Democracy, it was in 2011 when they formed a coalition with PASOK and the far-right-wing ‘Popular Orthodox Rally’ party (LAOS). For SYRIZA, it was in 2015 when they formed a coalition government with the ‘Independent Greeks’ (ANEL, a rightwing populist party) and later signed a third Memorandum of Understanding after protracted six-month-long negotiations that cost the Greek economy dearly. This ushered in the era of the Memoranda for Greece and caused a new divisive rift, which remained deep over the next decade, between those supporting the Memoranda and those opposing them.30 In October 2011, PASOK was ruling on its own with a large majority while the major opposition party, the conservative New Democracy still opposed the Memorandum. Thus, any thought of having the latter voted upon by the enhanced majority or Article 28(2) Const for treaties allowing for the transfer of constitutionally foreseen competences was not realistic. However, in this case, there was no such transfer of competences.31 On 21 February 2012, the Eurogroup agreed to grant a new loan of 100 billion euro to Greece and a retroactive reduction in rates to 150 basis points above Euribor. EU Member States also agreed to transfer to Greece all the profits made by their Central Banks by buying Greek bonds at a reduced interest rate by 2020. This new loan accompanied with the second Memorandum of Understanding (signed on 1 March 2012) was again under strict conditions. The Troika (the European Commission, European Central Bank and the IMF) which backed the rescue packages set three conditions for Greece to comply with in order for it to receive the loan. First, an agreement under which all sovereign bondholders would accept a 50 per cent cut with yields reduced to 3.5 per cent, thereby facilitating a debt reduction of 100 billion euro for Greece. Secondly, Greece had to implement another demanding austerity package to make the budget deficit more viable. Thirdly, the majority of Greek politicians had to sign an agreement that would guarantee their continued support for the new austerity package, even after the May 2012 elections. The Third Economic Adjustment Program for Greece, commonly referred to as the ‘Third Rescue Package’ or ‘Third Memorandum’, was another Memorandum of Understanding on financial assistance to Greece, signed on 13 July 2015 by the coalition government of SYRIZA and ANEL. These parties were previously bitter opponents of the Memoranda and were in a government under the leadership of Prime Minister Alexis Tsipras, who had promised before the elections to tear the Memoranda to pieces. Nevertheless, they implemented the austerity measures – maybe even better than the previous governments, although they have been more hesitant with the structural reforms. This Memorandum expired on 21 August 2018, which officially signalled the country’s exit from the Memoranda (economic measures), although what expired was the loan and not the austerity measures, supervisory mechanisms and conditions imposed in order for Greece to receive the financial help and a rescue package. 30 For a comprehensive analysis, Alexandros Kyriakidis, ‘The Greek Crisis 2009–15: A Comprehensive Analysis of the EU-IMF Financial Assistance Programs’ (2016) 24 IJES, 7. 31 Chryssogonos and Pavlidis, ‘The Greek Debt Crisis’, 286.

Greece  233 Since 2010, Greece has received financial assistance from the eurozone Member States. Specifically, within the framework of the first Macroeconomic Adjustment Programme (May 2010–December 2011), the country received 52,900 million euro of bilateral loans, pooled by the Commission under the Greek Loan Facility. Within the framework of the second Macroeconomic Adjustment Programme (March 2012–February 2015), it received loans from the EFSF amounting to 130,900 million euro.32 Later (August 2015–June 2018) it received an additional amount of 59,900 million euro33 in the form of loans from the ESM. The total liabilities towards the eurozone Member States, the EFSF and the ESM amounted to 243,700 million euro. In addition, in support of the first and second Economic Adjustment Programmes, Greece also received financial assistance from the IMF, amounting to 32,100 million euro. Regulation 472/201334 (especially Art 7 applicable to the Member States requesting financial assistance) and Regulation 473/201335 concerning post-programme surveillance are worth mentioning, as they are particularly relevant to Greece. The latter transforms the Troika practice into EU law and safeguards the continuation of a Troika-like supervision over the Greek economy after the expiration of the programmes in the so-called ‘post-memorandum era’. According to its Article 1(1), this Regulation sets out provisions for enhanced monitoring of budgetary policies in the euro area and for ensuring that national budgets are consistent with the economic policy guidance issued in the context of the SGP and the European Semester for economic policy coordination.

Article 1 (2) also foresees that the application of this Regulation ‘shall be in full compliance with Article 152 TFEU’. It also aims at guaranteeing respect for the national practice and the institutions for wage formation, as well as Article 28 of the Charter of Fundamental Rights of the European Union (concerning the right to negotiate, conclude or enforce collective agreements or take collective action in accordance with national law and practice). On 9 May 2016, in its Statement on Greece (the only eurozone country still remaining under a Financial Help Program), the Eurogroup suggested the establishment of an automatic fiscal adjustment mechanism that would be activated when there was a deviation from its budgetary targets programme. In Greece, there have been three such mechanisms.36 The first one was established by Law 4270/2014 (Arts 38 and 39), which incorporates Directive 2011/85/EU (one of the Six Pack) into the Greek legal order. The mechanism is called the ‘Correctional Facility’ and refers to ‘significant deviations from the fiscal objective or the adjustment path towards it’. It is activated by the Minister of Finance when a possible deviation from the medium-term budgetary objective is likely to happen or automatically following a relevant ECOFIN decision based on the SGP. The second mechanism was introduced by Article 1(25) of Law 4334/2015 (July 2015) but was short-lived as it was abolished a month later in August 2015 (Art 2 of Law 4336/2015, which further strengthened the mechanism introduced by Law 4270/2014). The third mechanism is entitled ‘Automatic Budget Financial Adjustment Mechanism of General Government’ and 32 Net of EFSF bonds in the value of 10,900 million euros transferred to the Hellenic Financial Stability Facility in March 2012 and returned in February 2015. 33 Net of 2,000 million euros of loans for bank recapitalisation, repaid in February 2017. 34 Regulation (EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States in the eurozone experiencing or threatened with serious difficulties with respect to their financial stability, OJ L 140, 27 May 2013, pp 1–10. 35 Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the eurozone, OJ L 140, 27 May 2013, pp 11–23. 36 Alexandros Kyriakidis and euanddemocracy, Brief on the 9 May 2016 Eurogroup Statement on Greece, available at www.euanddemocracy.ideasoneurope.eu/2016/05/09/brief-9-may-2016-eurogroup-statement-greece/.

234  Lina Papadopoulou was established under Article 233 of Law 4389/2016. The mechanism is intended to ensure the achievement of the objectives of the third programme. It includes progressively increasing reductions in the state budget, which are applied if the Greek Statistical Office finds a discrepancy between the programme’s financial targets and the actual general government financial situation (after deducting any tax measures taken during the last year). Accordingly, on the basis of a Commission decision,37 and given the fact that the financial assistance provided by the ESM expired on 20 August 2018, Greece has formally exited the Memorandum era but has been subject to enhanced surveillance under Article 2(1) of Regulation (EU) No 472/2013 for six months, which has subsequently been renewed.38

ii.  Policies that Formed the New European Economic Architecture Through a single Law (4063/30 March 2012, Government Gazette 71, A’) the Greek parliament ratified39 the European Council decision of 25 March 2011, which amended Article 136 of the TFEU, the Treaty establishing ESM (TESM) and the Treaty for Stability, Coordination and Governance in the EMU (TSCG). In the parliamentary debate preceding this ratification, the opposition parties declared that this law, ratifying a treaty instigating a transfer of powers to international organisations, as stipulated by Article 28(2) Const, should be voted upon by at least three-fifths of the total number of MPs. More specifically, in Parliamentary Session 116 of 28 March 2012, a long discussion between MPs took place with the opposition ones (SYRIZA and LAOS) denying the constitutionality of the procedure. It was purported that the qualified majority of Article 28(2) Const (three-fifths) was needed40 and that the bill was unconstitutional. It was dubbed unconstitutional because it would change the EU Treaties substantially and the Constitution and, thus, a revision procedure should legally be followed, and a referendum would be politically desirable. In criticising the EMS, Dimitris Papadimoulis, Member of SYRIZA, politically criticised the EMS as such, as establishing ‘a neo-liberal German Europe that binds our country to the recessional spiral of death’. The majority of MPs, however, supporting the government, rejected these objections. The Minister of Finance, Sachinidis, then clarified that Article 28(1) Const was the legal basis of the bill (p 8026). The two major parties of that time (2012), the centre-leftist PASOK and the right-wing New Democracy, voted in favour, while SYRIZA voted against, together with the Communist Party. To be precise, 194 MPs voted in favour of ratifying the bill, and 59 voted against (out of a total of 300; the rest were absent), a sizeable majority. Elections took place a couple of months later (May–June 2012) resulting in the disempowerment of PASOK and a strengthened SYRIZA faction in the parliament. At that time, SYRIZA and ANEL (together with the Communist Party and the neo-Nazi ‘Golden Dawn’) were still against the Memoranda and all the austerity measures, as well as the new economic architecture. Everything was then presented by these parties as unconstitutional, and there was a long series of judicial disputes on all the measures. The discussions and criticisms from both politicians and constitutional lawyers (some of whom also were or later became politicians with SYRIZA and ANEL) focused mostly on the introduction of a ‘golden rule’ or ‘debt break’ introduced by the TSCG (including the Fiscal 37 Commission Implementing Decision (EU) 2018/1192 of 11 July 2018 on the activation of enhanced surveillance for Greece (notified under document C[2018] 4495), based on Regulation (EU) No 472/2013. 38 Commission Implementing Decision (EU) 2019/338 of 20 February 2019 on the prolongation of enhanced surveillance for Greece (notified under document C[2019] 1481). 39 See the Minutes of Parliamentary Session 116, 3rd Term, 13th Period, 28 March 2012, Vol VIII, 8020ff. (in Greek). 40 Ibid, 8030.

Greece  235 Compact; Art 3). These voices questioned the democratic character of such a constitutional provision, claiming that it would undermine the power of the democratically elected government to produce deficits if it thought that these would better serve the public interests.41

C.  Criticisms of the Memoranda and the New European Economic Governance i.  Allegations for Violation of Democracy and Social Rights The Memoranda have stirred a harsh debate, and many constitutional lawyers have fiercely opposed them, even suggesting42 that they formed a ‘side-Constitution’ undermining the whole constitutional legal order. In a similar vein, Chryssogonos and Koutnatzis43 expressed their concern that Greece’s character as a sovereign state has been undermined through the loan agreements with the other eurozone states. Accordingly, the bail-out has been criticised as an asymmetric bankruptcy mechanism, which embodied a de facto transfer of economic sovereignty to the Troika.44 Some constitutional lawyers argued that the ‘rescue mechanism’, the whole edifice of the Memoranda and their executive measures, and all the relevant government decisions had been ‘taken outside constitutional procedures, and, what is more, even outside its [the country’s] borders’45 and that the Greek Constitution has been deconstructed.46 This was mainly because the parliament has been completely marginalised, since lengthy laws executing the Memoranda were voted upon in a short time, without even allowing the MPs the necessary time to read them, as was readily admitted by some of the MPs themselves. The executive laws also contained a few or even only one lengthy article, making it impossible to vote against specific measures. Last but not least, recourse to the extraordinary procedure for enacting laws and decrees (especially ‘acts of legislative contents’, Art 44(1) Const) became common during the crisis. In particular, it became common to enhance the executive at the expense of the legislator,47 allow the governments to endorse the measures administered by the technocrats of the Troika (European Central Bank, IMF and EC), and avoid parliamentary debates and virtually any public debate.48 Moreover, it has been argued that social rights enshrined in the Greek Constitution49 and EU social law50 have not only been restricted but violated. In particular, collective rights in the

41 For a more analytical presentation of this debate, see Lina Papadopoulou, ‘Can constitutional rules, even if “golden”, tame Greek public debt?’, in M Adams, F Fabbrini and P Larouche (eds), The Constitutionalisation of European Budgetary Constraints (London, Bloomsbury Publishing, 2014) 223. 42 George Katrougkalos, ‘The “side-constitution” of the Memorandum and the other way’ (2011)59 Nomiko Vima, 231. 43 Kostas Chryssogonos and Stylianos-Ioannis Koutnatzis, ‘Die finanzielle Tragödie Griechenlands …’, 410ff. 44 Chryssogonos and Pavlidis, ‘The Greek Debt Crisis’, 295, 287. 45 Iphigenie Kamtsidou, Un état d’exception nullement exceptionnel. La crise souveraine et le crépuscule de la Constitution. Un aperçu historique (2015) 9, available at www.constitutionalism.gr/2015_kamtsidou_un-etat-dexceptionnullement-exceptionnel/. 46 See Afroditi Marketou, ‘Greece: Constitutional Deconstruction and the Loss of National Sovereignty’ in T Beukers, B de Witte and C Kilpatrick (eds), Constitutional Change through Euro-Crisis Law (Cambridge, Cambridge University Press, 2017) 179. 47 Kostas Chryssogonos and Stylianos-Ioannis Koutnatzis, ‘Demokratie und Verfassung in der Zeit der Krise: Überblick zu Ursachen und Implikationen aus der Sicht Griechenlands‘, in D Kübler and N Stojanovic (eds) Demokratie in der Europäischen Union/Democracy in the European Union (Zürich, Schulthess Verlag, 2014) 31. 48 Kamtsidou, ‘Un état d’exception nullement exceptionnel’, 9. 49 See a critical presentation by Chryssogonos and Koutnatzis, ‘Die finanzielle Tragödie Griechenlands’, 406ff. 50 Kostas Chrysogonos, Triantafyllos Zolotas and Anastasios Pavlopoulos, ‘Excessive Public Debt and Social Rights in the Eurozone Periphery – The Greek Case’ (2015) 22 MJ 592, 596.

236  Lina Papadopoulou workplace and the right to social security have been severely eroded. The reforms of the social security system have significantly lowered pensioners’ living standards.51 The courts initially displayed a tendency to accept the deterioration in the situation of social rights. Critics purport that they twisted the notion of the public interest as they viewed it through a European lens by over-emphasising European integration and respect for the rules of European economic governance as a constitutional goal.52

ii.  The Courts’ Stance In this vein, an unprecedented recourse to the courts confirmed the judicialisation of a political debate leading to both a dysfunctional blend of legal and economic concerns and politicisation of the judicial review. Litigation did not formally target the law but the administrative acts of normative content (mainly presidential decrees and ministerial decisions). The annulment of such an administrative act may, however, be based not only on its antithesis to the law but also on the unconstitutionality of the statute, which then needs to be changed, despite the fact that the courts have no competence to annul statutes directly. Cases that are of greater interest may be transferred from the lower courts to the CoS on the basis of a new institution called the ‘pilot trial’ or ‘model trial’ (see Art 1 of Law 3900/2010). Even though officially pilot-judgments are not binding on all other similar cases, CoS’s authority does, in practice, decisively influence all the jurisprudence of the lower courts, who know that any opposing decision can be overturned at a later stage. Crisis measures have been adopted by means of legal instruments ranking below the Constitution, that is to say, mainly parliamentary statutes implementing the MoU between Greece and its creditors. These laws have often been challenged before the courts, both the lower and the highest courts (mainly CoS and the Court of Audit53). Faced with such challenges, the courts initially maintained a rather stance.54 Whereas in the years before the crisis they had tended to accept citizens’ demands for further state benefits, thus contributing to the public deficit, at the beginning of the crisis, when almost everybody, including themselves, felt inhibited, they rejected the popular demand that they should proof prove themselves as the protectors of the people’s interest. They adopted the ‘significant national interest’ as an important interpretative yardstick and accepted the constitutionality of the austerity measures, taking into consideration the country’s financial and budgetary situation. Not only financial measures stricto sensu, but also almost any kind of measure (tax measures, privatisation, structural transformation of public administration, labour and health sector reforms) were justified in view of the country’s economic situation. In this way, although the courts cannot directly control economic policy, economic policy has acquired a dominant position in their decisions. This stance was also initially justified on the basis of the country’s participation in the

51 Cf Constantin Yannakopoulos, ‘Un Etat devant la faillite: entre droit et non-droit’ in Zaradny / Wolff / Fleury Graff (dir), La fin du droit ?, Actes du colloque des 5 et 6 décembre 2013 (Paris, Editions Mare et Martin, 2013). 52 Kamtsidou, ‘Un état d’exception nullement exceptionnel’, 10. 53 Within this context the Court of Audit mainly examined cases of cuts in the pensions of pensioned civil servants. 54 See especially the first ‘hard cases’, the decisions by the Plenary of the CoS 668/2012, 20.02.2012, concerning the first Memorandum of Understanding, and 1116/2014, 21 March 2014 and 238/2015 concerning the PSI (Private Sector Involvement, meaning a ‘haircut’ of privately owned bonds). PSI was a scheme for restructuring of Greek debt held by private investors (mainly banks), executed in March 2012. About 97% of privately held Greek bonds (about €197 billion) took a 53.5% cut in the face value (principal) of the bond, corresponding to an approx. €107 billion reduction in Greece’s debt stock. See ESM, www.esm.europa.eu/content/what-was-private-sector-involvement-psi-greece.

Greece  237 European project.55 The vital importance of the country’s European orientation explained why the measures had to be taken and also why it was important for the country to exit the financial crisis. This pattern of judicial review is exemplified in judgment 668/2012 of the CoS (Plenary).56 That was the first ‘hard case’ concerning the first Memorandum, in which the court rejected all the allegations. The application challenged the conformity with the Constitution and Article 1 of the First Protocol to the European Convention on Human Rights (ECHR) of the provisions of Laws 3833 and 3845/2010, which provided for a cut in salaries and retirement benefits. The litigants57 (both collective entities, such as professional organisations and trade unions, such as the Athens Bar, the Panhellenic Union of Civil Servants [ADEDY], the Technical Chamber of Greece, the Daily Newspaper Editors Association, etc and individuals) asked for the annulment of normative administrative acts implementing austerity measures and individual administrative acts embodying these same measures concerning the individual litigants. The litigants also complained that the Memorandum of Understanding had not been voted upon by the qualified majority as stipulated in Article 28(2) Const, despite the fact that it had led to the transfer of constitutionally vested powers to institutions of international organisations.58 The decision is remarkably long (over 30,000 words) and effectively planned and documented since the Court exhibited an ‘admirable skill to put everything in an exhaustively detailed technical legal word dressing’.59 Noteworthy are the multiple references to EU law (European Treaties, Protocols, Regulations and European Council Decisions) the IMF and fiscal data obliging the state to take measures, including the Memorandum itself, the Loan Facility Agreement of 08 May 2010 and Law 3845/2010, including its explanatory report. It also contained many concurring and dissenting opinions by judges. The Court firstly clarified that the Memorandum did not recognise competencies in the organs of international organisations or other established rules of law and, being merely a government programme, was not directly applicable. On the contrary, in order to implement the policies announced by it, relevant acts had to be issued by the competent state institution (laws or regulatory, administrative acts after statutory delegation). Despite some minor dissenting opinions, the majority of the judges concluded that (para 28) The Memorandum is not a treaty since it does not involve reciprocal commitments by the parties who signed its English-language text, nor does it provide for legal means to force the Greek authorities to faithfully and unequivocally implement it or any other sanctions of a legal nature.

The Court also accepted (para 32) that there was no violation of Article 28(3) Const. This meant that there was no limitation on the exercise of national sovereignty since the Greek government had retained its power under Article 82(1) Const to draw up the country’s general policy. However, according to a dissenting opinion (by six [plus one] judges, including the future president of the Court, N Sakellariou), the Memorandum, although not voted upon by parliament, as stipulated by Articles 36(2) and 28(1) or (2) Const, and thus not having acquired the superlegislative status of treaties, obliged parliament to act in a constrained way and imposed measures infringing human rights, most notably the principle of equality. According to another justice 55 Council of State (Plenum) 668/2012. 56 The judgment was issued on 20 February 2012, although it had been heard in November 2010. See also CoS 1283-4/2012 (Plenary), 3783/2015 (Section A΄), 2432/2017 (Section A΄). 57 See Xenofon Contiades and Ioannis Tassopoulos, ‘The Impact of the Financial Crisis on the Greek Constitution’, in X Contiades (ed) Constitutions in the Global Financial Crisis. A Comparative Analysis (London, Routledge, 2013) 195, 198. 58 See Maria Meng-Papantoni, ‘Legal Aspects of the Memoranda of Understanding in the Greek Debt Crisis’ (2015) 18 ZEuS, 3, 15. 59 Yannis Drossos, Love’s Labour’s Lost: fighting austerity and crisis with obiter dicta. A gloss on the expediency of constitutional justice in times of crisis (2013) available at www.constitutionalism.gr/drossos_constitutional-justice-in-times-of-crisis/.

238  Lina Papadopoulou (Karamanof), ‘the measures put at risk the dignity of the economically weaker classes and their right to receive effective care and welfare services, social security, and so on’. According to these minority opinions, Article 28(3) Const was violated. The Court further accepted that the exceptional circumstances had justified the adoption of extraordinary measures, restricting Article 1 of the First Protocol to the ECHR (para 34) and that the fiscal interest of the state represented a pressing public interest,60 which allowed for emergency measures and the cutting of salaries and pensions. Again, according to various minority opinions, there had been a violation of the principle of proportionality in restricting the right to property and social rights or even, in some cases, a violation of the principle of human dignity. The majority, however, accepted that the cuts imposed on salaries and pensions were justified under the pressing financial and fiscal conditions, so long as the legislator respected the principle of equality on public burdens (Art 4(5) Const) (a kind of Solange condition, setting the scene for future judgments finding measures as unconstitutional) and the principle of human dignity (Art 2(1) Const). The court felt that adjudicating on these measures, which were (presented as being) necessary for a disorderly default to be avoided, fell outside its field of competence. Thus, it preferred judicial deference and self-restraint rather than activism. It noted that the measures challenged before it did not appear ‘to be manifestly inappropriate … and cannot be said to be unnecessary, since the legislator’s considerations … have been based on its assessment of the urgent financial situation, which is subject only to marginal judicial review’. The judgment has been heavily criticised by those arguing the unconstitutionality of the first Memorandum, since it went against the prevailing anti-memorandum sentiment of the Greek people, which was ubiquitous in both the traditional and new media, including the social ones. According to Kamtsidou, eg, in Decision 668/2012 the state action as a whole is pervaded by the duty to satisfy an interest that is not defined in relation to the country’s socio-political situation, but which derives from the European and international regulations, the respect of which is a condition for the protection of the homeland.61

However, the European Court of Human Rights reaffirmed the 668/2012 judgment through its Koufaki decision62 by finding the case inadmissible as manifestly unfounded. The Court reminded that the Member States of the Council of Europe enjoy a large margin of appreciation with regard to their social policy (para 31) and that Article 1 of Protocol 1 ‘cannot be interpreted as securing a right to a pension of a determined amount’ (para 33). Similarly, the CoS exhibited the same restraint in its decisions on the PSI (CoS judgments 1506–08/2014 and 237/2015). The Council did not apply the proportionality principle in its entirety by failing to examine whether this measure was necessary. Thus, it dismissed the actions for annulment. It is noteworthy, however, that there was a large dissenting opinion. In this first phase of its case-law on the crisis measures, the CoS largely accepted that there was a pressing need to prevent bankruptcy and safeguard the monetary stability of the eurozone. This point of view has been heavily criticised by commentators, especially because the measures taken did not have a specific duration but were rather permanent, instituting new normality formed ‘by the commands of European and world economic governance’.63 60 See more analytically, Iphigenie Kamtsidou, ‘L’intérêt public aux temps de crise’ (2013) 96 Recherches Internationales, 91; from a different point of view Georges Karavokyris, ‘Limitations, restrictions et dérogations aux droits. La normalité d’une crise exceptionnelle: le cas grec’ in H Gaudin (ed), Crise de l’Union. Quel régime de crise pour l’Union Européenne? (Paris, Editions Mare et Martin, 2018) 189, 193. 61 Kamtsidou, ‘Un état d’exception nullement exceptionnel’, 11. 62 Koufaki and Adedy v Greece (dec.) – 57665/12 and 57657/12. Decision 7 May 2013 [Sec I]. 63 Kamtsidou, ‘Un état d’exception nullement exceptionnel’, 13.

Greece  239 In the second phase (starting roughly in 2014),64 however, when the danger of a disorderly bankruptcy seemed to have been removed, the courts started to exercise a stricter control of the unconstitutionality of laws. In some cases, the two Supreme courts (CoS and CoA) exercised control over the explanatory memorandum of the law and adjudicated in favour of the plaintiffs who were pleading against the unconstitutionality of the cuts in their salaries65 or pensions.66 Notably, in these decisions, the financial and budgetary situation was no longer linked with the country’s European obligations.

III.  Constitutional Obstacles to EMU Integration A.  Limits to the (Further) Transfer of Powers Through Treaty Amendments There are no specific constitutional obstacles to further EMU integration, except those enshrined in Article 28(3) Const, which apply to all kinds of transfer of powers to international organisations. The outermost limit is that the sovereignty of the state should be preserved67 and has the meaning of the ‘competence of competence’. That is to say, no international organisation, including the EU, can acquire new competences without the consent of the institutions of the state. This means that the competences to be transferred in the economic or any other sector, need to be specifically defined. The presuppositions enshrined in Article 28 Const are that the restrictions on the exercise of national sovereignty should be mutual. Moreover, according to Article 28(3) Const, the international organisation in favour of which Greece may limit its own sovereignty should be established on the basis of human rights and democracy, that is to say in constitutional terms.68 Thus, apart from the fact that the ‘competence of competence’ should remain with the national state,69 Greek constitutional law does not seem to contain insurmountable barriers to further EMU integration based on Treaty change. The courts have not developed an ultra vires doctrine with regard to EU law that is not backed by primary EU law. However, this does not necessarily mean that they will not follow the German Federal Constitutional Court in doing so in the future. Similarly, the Greek courts have not relied on the notion of constitutional identity (Art 4(2) TEU) as a counter-limit to EMU measures or further European integration. The only time that the notion has been used by the CoS (judgment 460/2013 of the Plenary Assembly) was in order to declare unconstitutional certain parts of a 64 Apostolos Vlachogiannis, ‘From submission to reaction: The Greek Courts’ stance on the financial crisis’ in Z Szente and F Gárdos-Orosz, New Challenge to Constitutional Adjudication in Europe – A Comparative Perspective, (London, Routledge, 2018) 72, 81 observes that the CoS has gone along with the political tide. 65 See the following judgments of the CoS (Plenary) of 13 June 2014: no 2192/2014 (concerning the army) and no 2194/2014 (concerning the police forces). 66 CoS (Plenary) 2287/2015 and 2288/2015 of 10 June 2015. These decisions were considered to signify a rupture with the previous judicial deference towards the legislator and a new phase in the CoS’s crisis jurisprudence. Similar decisions, which declared a series of measures as unconstitutional, followed: see Court of Audit 7412/201 (Plenary) of 02 December 2015 and CoS Council of State, Decision 431/2018 (Plenary) of 26 February 2018 (cuts on NHS doctors’ pensions and salaries respectively), Court of Audit 244/2017 (Plenary) of 8 February 2017 (solidarity levy imposed by Law 3865/2010 on all public service pensioners receiving over 1.400 euros a month); Court of Audit 1277/2018 (Plenary) of 29 June 2018 (cuts imposed by Law 4093/2012 on public service pensions); CoS 479/2018 (Plenary) of 2 March 2018 (cuts on technical university professors). 67 Antonis Manitakis, Greek Constitutional Law (Thessaloniki, Sakkoulas, 2004) 385 (in Greek). 68 See in detail and with a further bibliography, Lina Papadopoulou, ‘Greece’. 69 Concerning the theories on the limits imposed by the Greek Constitution on the transfer of competences to international, eg. Union, institutions, see Lina Papadopoulou, ‘Greece’.

240  Lina Papadopoulou law relaxing the conditions for granting Greek citizenship to migrants and their descendants.70 In contrast, the notion of constitutional identity has not been used in the EMU context or as a means for restraining a transfer of powers or blocking EU legislation within this context. In the past, the idea had been supported that these constitutional values – democracy and the protection of human rights – set the outer limits of competence transfer and thus function as obstacles to further integration.71 This earlier and more constrained view reflected the Italian theory of ‘counter-limits’ and rests upon the theory of democratic statism, the conviction that democracy is only possible within the nation state. It also reflects the theory of the ‘no demos thesis’, which could legitimise a European government. This view has become outdated, especially after the union’s attempts to deal with its democratic deficit. The idea that these constitutional values set the outer limits of competence transfer has in the meantime, been abandoned in favour of the extroverted approach. According to Evrigenis’ reading, which has subsequently become prevalent, ‘human rights’ and ‘the foundations of democratic government’ must determine the ‘political philosophy’ of international organisations in favour of which Greece could make restrictions on its national sovereignty.72 Thus, democracy and human rights do not constitute a ‘hard,core of sovereignty’ that may not be removed from the national state but rather the constitutional guidelines for the international organisation (eg, the EU) to be eligible for the transfer of a number of competences that effectively limit the exercise of national sovereignty. However, the wording of Article 28(3) Const implies, as already mentioned, that only the exercise of sovereignty, in other words specific competences, can be limited and not sovereignty itself. It is not clear, however, if the ratification by the parliament of EU Treaties introducing further EMU steps calls for the higher threshold of three-fifths of all its members, in accordance with Article 28(2) Const. To the extent that such a treaty would cause the transfer of competences which remain in the hands of national organs (eg, the minister of Finance) to a supranational organ (eg, the European minister of Finance), this qualified majority would be necessary. If, however, the object of the new treaty would be a competence already vested with a Union organ, such an enhanced majority would not be necessary. The absolute majority of all the MPs is also necessary, according to the view supported here and elsewhere,73 when a competence currently exercised unanimously, thus allowing for a veto by every single government (intergovernmental competences), is turned into a supranational one, decided upon by a (qualified) majority. In the latter case, there is not a transfer of competence (in the meaning of Art 28(2)) Const, but a limitation on the exercise of national sovereignty, since the country’s position can be overruled by its partners’ votes. In this latter case, Article 28(3) Const demands (in order for the treaty to be voted upon) that the profiting institution function democratically and respect human rights. A milder and more restricted facet of the older theory of controlimiti concerns the economic and fiscal competences. This argument,74 which has been voiced by those opposing the 70 In detail, Lina Papadopoulou, ‘Schooling as a basis for naturalisation: Exploring the educational and philosophical underpinnings of a legal debate in Greece’ in A Viviani (ed), Global Citizenship Education, Multiculturalism and Social Inclusion in Europe (2018) 201, 205ff. 71 This theory was initially and mainly introduced by Antonis Manitakis, ‘The limits of the Community’s competence and their constitutional validation’ (in Greek) (1984), To Syntagma, 472, 490, and was until recently followed by a significant proportion of Greek constitutional lawyers. 72 Dimitrios Evrigenis, ‘Aspects institutionnels et juridiques de l’enlargissement. L’impact de l’adhesion sur les institutions et le droit des pays candidats: Grèce’ in W Wallace and I Herremann, A Community of Twelve. The Impact of Further Enlargement on the European Communities (Bruges, De Tempel, 1978), 135; Evangelos Venizelos, Lectures on Constitutional Law (Thessaloniki, 1991) 153 (in Greek). 73 See Papadopoulou, ‘Greece’ in S Griller et al, National Constitutions and EU law, Hart Publishing 2021 (forthcoming). 74 See, eg, Yannis Drossos, ‘Constitutional discourse and economic crisis’ (2011) Journal of Administrative Law, 767 (in Greek).

Greece  241 Memoranda and EMU development during the crisis in legal and political contexts, originates in Article 82 Const. It stipulates that ‘the Government shall define and direct the general policy of the country, in accordance with the provisions of the Constitution and the laws’. The (national) government, the argument goes, is democratically legitimated by the parliament, which in turn is directly elected by the people. This invests economic and fiscal policies with democratic legitimacy. Nevertheless, an economic and fiscal policy defined by external centres of power, such as the institutions of international organisations like the EU, which are not democratically legitimated, contravenes the substantive requirement of democracy laid down in Article 28(3) Const.

B.  No Balanced Budget Constitutional Provision Greece’s fiscal Constitution75 has never contained any ‘debt break’ (‘golden rule’), before or after the New Economic Governance since the Constitution has not been amended since the initial outbreak of the crisis. No proposal for insertion of the ‘golden rule’ nor any other normative entrenchment of some kind of fiscal constitutionalism has been endorsed by the parliamentarian majority in the course of the current (2018/19) constitutional revision (due to be completed by the parliament to be elected in 2019). The latter is foreseen in Article 110 Const. The ‘eternity clause’ and the hardcore of the Constitution enshrined in Article 110(1) Const does not exclude a ‘balanced budget amendment’, although there are voices purporting that it does. The latter view argues that such a ‘golden rule’ would pose an excessive restriction on the government’s competence (guaranteed by Art 82 Const) to decide on economic and fiscal policies and jeopardise the principle of democracy, which is part of the eternity clause. However, this view overlooks the fact that constitutionalism is a binding framework that imposes constraints on the institutions exercising powers, as long as there is a supreme interest (including human rights) to be protected. In other words, procedural democracy may be limited through substantive guarantees, if this is deemed necessary to safeguard the personal and collective autonomy of Greek citizens. Another argument against the insertion of a ‘golden rule’ in the Constitution is that it would jeopardise constitutionally protected social rights.76 In any case, formal amendment of the Constitution requires parliament’s approval with qualified majorities in two consecutive parliament compositions. These procedural requirements are rather difficult to fulfil. The required qualified majority is three-fifths in one of the compositions and an absolute majority of the total number of MPs in the other (see Art 110(4) Const). Politically speaking, this means that inserting a ‘golden rule’ into the Constitution presupposes that different political parties agree on the basics of future economic policies and on a set of contingencies that would provide them with little room to deviate from a balanced budget when in office. Given the current political situation and SYRIZA’s opposition to such a rule in the Constitution, such an amendment is not possible. Nevertheless, the existing agreements on the basis of which the third Memorandum of Understanding was signed (by the SYRIZA-ANEL government in 2015) establish Greece’s obligation to achieve major primary surpluses, which lead to stricter fiscal commitments than those 75 Section III: Parliament, Chapter Six: Taxation and fiscal administration, Arts 78–80 Const and Art 75 ‘Bills resulting in burdening the State budget’. 76 Vassilios Tzemos, ‘Democratic state and the rule of law, difficult economic facts and a constitutional debt brake clause’ (2011) Theoria kai Praxi Dioikitikou Dikaiou, 1, 7 (in Greek); Panayotis Mantzoufas, ‘The “golden” fiscal rule in the Constitution – Solution of the problem or one more hurdle for the economic adjustment and the protection of rights’ in C Akrivopoulou and N Papachristos (eds), The Challenge of Constitutional Revision (Athens-Komotin, Sakkoulas 2013) 123, 135ff.

242  Lina Papadopoulou that might be imposed through a constitutional ‘golden rule’. Consequently, it cannot be expected that Greece will be brought before the Court of Justice of the European Union (CJEU), pursuant to Article 8(1) TSCG, on the accusation of not having implemented Article 3(2) TSCG.77 This is because the TSCG is already ratified and incorporated into the Greek legal system through Law 4063/201278 and all the necessary mechanisms have been put in place in order to guarantee its respect, as verified by the relevant Commission Report presented under Article 8 TSCG.79 Thus, the Fiscal Compact (Art 3 TSCG) has not only become part of the Greek legal order (due to the monist effect of the incorporation of international law in accordance with Article 28(1) Const), but it has also acquired higher legal validity and trumps the provisions of any ordinary law as well, although not on a constitutional level.

C.  Scrutiny of Secondary Legislation, Especially the Ultra Vires Doctrine i.  Undisputed Precedence of EU Law Over Statutes The CoS, the supreme administrative court, has been quite receptive of EU law, having accepted the precedence and enforceability of European law over statutes, as stipulated by Article 28 Const. This attitude is also in line with the obligation of courts to examine their motion the compatibility of domestic law with EU law.80 However, for a long time, there had been a sceptical approach by many theorists and the CoS towards the precedence of European law over the Constitution.81 At the same time, the courts are expected to interpret statutory provisions in accordance with both the Constitution and EU law and disapply these provisions if they breach the Constitution or EU law. This competence results from the superiority of the Constitution82 and the precedence of EU (that is, international) law over statutory law, in accordance with Article 28(1) Const. This view is consistent with the alleged superiority of the Constitution with respect to EU law, the application of which is required by specific constitutional provisions and not only fundamental constitutional principles. Consequently, according to this stance, the constitutional review of EU law is possible even on a case-by-case basis, as each Union act, like any domestic law, is subject to the national Constitution. These considerations are reflected in an exemplary way in CoS judgment 3242/2004, which invoked the competence of all Greek courts (Arts 93(4) and 87(2) Const) to perform a constitutionality control of all laws without exception, ie, substantive laws, which include EU regulations or directives. The above position in favour of the controllability of the constitutionality of EU law denies the unique nature and relative autonomy of the EU legal order and underestimates the normative function of Article 28(2)–(3) Const. In contrast, a more convincing view is that national courts

77 See in detail Papadopoulou, ‘Can constitutional rules, even if ‘golden’, tame Greek public debt?’. 78 Art 3 of Law 4063/2012, Official Journal of the Government (FEK) Α΄ 71/30 March 2012. The same law ratified the amendment of Art 136 TFEU (Art 1) and the ESM Treaty (Art 2). 79 EC, Report presented under Art 8 of the TSCG in the EMU, 22 February 2017, C(2017) 1201 final, p 12. 80 George Gerapetritis, ‘The Hellenic Council of State vis-à-vis the European Court of Justice: From voluntary seclusion to inevitable constitutional dialogue’ in N Alivizatos (coord.) Essays in honour of Georgios Kassimatis (Berlin, BWV Berliner Wissenshafts Bruylant, 2004) 83. 81 See CoS 3502/1994 and 249/1997, which stressed that the Greek judge must set aside and not implement any Greek law provision contrary to EU law (and the ECHR). Similarly, CoS 180/2008 (Β΄Section). For further detail on this debate and the hard cases which reflect it, see Papadopoulou, ‘Greece’, op cit. 82 Art 93(4) Const (‘4. The courts shall be bound not to apply a statute whose content is contrary to the Constitution’), in conjunction with Art 87(2) (‘In the discharge of their duties, judges shall be subject only to the Constitution and the laws; in no case whatsoever shall they be obliged to comply with provisions enacted in violation of the Constitution’).

Greece  243 are not competent to judge a Community/Union act on the basis of the Constitution, since the two systems have their own structures for monitoring and evaluating their respective acts despite the fact that they are interconnected. According to this view, the constitutionality control that Greek courts may exercise on EC/EU law is limited by the criteria laid down by Article 28(2)-(3), which are more specific compared with the general provision of Article 93(4) Const. Nevertheless, if the controlimiti (limitations of limitations) of Article 28(3) Const are considered to be applicable to the EU, then the control necessarily becomes one of a systemic and not a case-by-case type. It concerns the institutional system of the EU in general. Furthermore, it becomes marginal and exceptional, in the sense that national courts may hear a case only in certain exceptional, hypothetical and unlikely events. Such is the event that the institutional system deviates from any concept of democratic government, or if it undermines the democratic governance of the Member States. Another event is where the whole system is not built on equality and reciprocity, or it ignores, in a profound, lasting and persistent way the fundamental rights defined in Article 110 Const, which delineates the hard, non-revisable core of the Constitution. In that regard, the factual inequality established in the context of the bail-out mechanism undermining the institutional equality of EU Member States83 is constitutionally troubling. Therefore, the only possible judicial review of the constitutionality of EU law is the marginal judicial review of compliance with the clauses of Article 28(3) Const guaranteeing the core of the constitutional and political culture, not only of the Greek constitutional order and the constitutional order of each Member State. Such scrutiny, however, has not yet been performed by Greek courts. Moreover, the latter has not yet developed an ultra vires doctrine regarding the scrutiny of secondary EU legislation. It could be further argued that such a development seems highly unlikely in the future, given the lack of a Constitutional Court and the features of the current form of judicial control (ad hoc, concrete and diffused control) that impede the judicial scrutiny of secondary EU legislation envisaging the structural reform of the EMU.

ii.  Against the Yardstick of National Constitutional Requirements Whereas limits to European integration and the transfer of constitutional competences fall under Article 28(3) Const (see Sec IV below), EU integration outside the EU legal order, as long as it is designed through treaties of international law, does not enjoy primacy over the Greek Constitution. Thus, ideal typically at least, and no matter how improbable this might be, these treaties may be scrutinised by Greek courts on the basis of all constitutional provisions. For instance, the legal status of the ‘Fiscal Compact’ as a treaty is above formal laws but below the Constitution. Theoretically speaking, this allows a court to constitutionally review the ‘golden rule’ based on the assumption that it contravenes both fundamental principles, such as democracy (Art 1 Const) and the social state (Art 25(1) Const), as well as specific social rights. Such a development, however, leading to Greek courts restricting the executive’s ability to fulfil its budgetary obligations, is highly improbable in light of the judicial experience to date. In its seminal decision on the measures implementing the first Memorandum of Understanding (CoS Plenary 668/2012), as was described in detail above, the CoS exhibited self-restraint and avoided declaring those austerity measures unconstitutional. It ruled that the Memorandum was not a treaty and did not affect the government’s power to shape the general policy of the country (Art 82 Const). Apart from this case, no other case of a similar magnitude relating to the 83 Evangelos Venizelos, ‘State Transformation and the European Integration Project – Lessons from the financial crisis and the Greek paradigm’ (2016) 130, CEPS Special Report, 1, 20.

244  Lina Papadopoulou abovementioned matters has been brought before the Council of State until now. Neither has any of the instruments introducing the new European economic governance measures been disputed or found to be ultra vires. Moreover, the CoS refused to review the internal procedures on the basis of which these new policies, or the statutes implementing the MoU, were ratified or voted upon by the parliament (the so-called interna corporis of the parliament, ie the procedures leading to the adoption of bills). This is even though sudden decisions were often taken, such as measures packed into one single long article with no possibility of being amended by the parliament (‘take-it-or-leave-it’ decisions). The same court remained faithful to the actes de gouvernement/political questions doctrine and respected its jurisdictional limits, unwilling to usurp political power in order to jeopardise the European economic measures. This stance changed in the second period mentioned above (roughly since 2014) when the CoS started to declare that certain austerity measures, such as salary and pension cuts, were unconstitutional. These were not, however, measures directly related to the new EMU architecture but rather governmental measures aimed solely at fiscal consolidation. It seems that the Court initially gave the executive some breathing space, as for many, the crisis broke out rather suddenly (despite some warnings, eg, by the ex-Prime Minister Kostas Simitis in as early as December 2008). However, as time passed, the Court seemed to become stricter and allow the government less room for manoeuvre than at the beginning of the crisis. From a sociological point of view, it is interesting to note that the wider the political and social support for the Memoranda was, the less room for political manoeuvre was left to the executive by the Council. Both ‘New Democracy’ (most of its MPs had voted against the first Memorandum) and SYRIZA and ANEL were initially against the adjustment programmes and remained fiercely opposed to them until they assumed power themselves, as already observed. In this continuum, the CoS started to single out as unconstitutional measures that did not have a heavy and direct fiscal impact. For example, it declared a redundancy scheme for civil servants close to retirement age84 and the restriction of the trade unions’ right to resort to arbitration85 unconstitutional. The first decision, which came not from a lower but a higher court and found that a specific salary cut was unconstitutional, had been issued by the Special Court of Article 88 Const (often called ‘Misthodikeio’, meaning ‘the Salaries Court’), which has the competence for adjudicating on judges’ salaries. According to this judgment,86 the retroactive reduction of judges’ salaries based on Law 4093/2012, which implemented the second Memorandum, was voted upon in December 2012 as an urgent matter and foresaw cuts in the salaries of all public servants. This reduction was found to be contrary to the provisions of Article 26 Const (separation of powers) and also various constitutional provisions regarding the judiciary (Arts 87(1) and 88(2) Const87). According to the court, these constitutional provisions required the special salary treatment of judicial officers by granting them salaries commensurate with their status and mission. Not long afterwards, the CoS88 declared the salary cuts (again imposed by Law 4093/2012) for public employees in uniform, ie, those working in the armed forces and in the police unconstitutional. Last but not least, it is noteworthy that the constitutional revision process, as was previously mentioned, is very cumbersome and slow. Therefore, it cannot serve as an effective means for

84 Council

of State, Decision 3354/2013 (Plenary) of 27 September 2013. of State, Decision 2317/2014 (Plenary) of 24 June 2014. 86 Court of Art 88 Const, Decision 88/2013 of 30 December 2013. 87 Art 88(2) Const.: ‘The remuneration of magistrates shall be commensurate with their office.’ 88 Council of State, Decision 2192/2014 (Plenary) of 13 June 2014. 85 Council

Greece  245 controlling or reversing EU legislation. Neither has any government attempted to do this (with the exception perhaps of the so-called ‘principal shareholder’ case).89 The ‘principal shareholder’ case received a great deal of political and legal attention. It concerned a constitutionally embedded and not rebuttable presumption of incompatibility between the tenderers for public works contracts and the main shareholders of media corporations. The CoS, in its final decision 3471/2011 on that case,90 accepted that the Constitution itself obliged courts to adopt a European-consistent interpretation of Greek law, including the constitutional provisions, ‘thus turning the doctrine of indirect effect into a pragmatic tool for constitutional pluralism in action’.91

D.  Evaluation of the Recent Proposals Given the fact that proposal COM(2017) 824 seeks to incorporate parts of the TSCG into EU law, it does not generate any constitutional objections. The Union law framework is generally considered to be more democratically legitimated than the intergovernmental framework, given the more enhanced guarantees that are provided for democratic legitimacy and judicial review, compared with those for intergovernmental cooperation. Any constitutional objection that is likely to be expressed by theorists will probably concern Article 82 Const (mentioned above), since more fiscal competences will be withdrawn from the government. Although it is not expected to make an impact on the courts, the accusation that more and more political decisions are being entrusted to technocrats and non-democratically legitimated ‘ephorates’92 is a noteworthy objection from a democratic theory point of view. The Commission’s proposal for a European Monetary Fund (EMF) was based on the same triad of ideas – ie, unity, efficiency and democratic accountability – that the Commission had set out in its Roadmap.93 Both ‘New Democracy’94 and SYRIZA95 (the major parties today), and also the Governor of the Bank of Greece,96 have already declared themselves in favour of an EMF. Given the fact that there seems to be a political consensus on this initiative, no political disagreement among the main political forces will be translated into constitutional argumentation. This has to do with the Europeanisation (inclusion into the EU law framework) of the ESM, and also with the negative image presented by the IMF and its intervention already in 2010. Therefore, a European counter-entity will be politically and constitutionally welcome. Notably, given the fact that a reinforced qualified majority, requiring 85 per cent of the votes cast by the ESM’s Board of Governors, will apply in cases where stability support is provided, together with a related choice of instruments and financial terms and conditions, paragraph 2 (transfer of competences) and paragraph 3 of Article 28 Const will apply (requiring both a qualified majority in parliament and 89 See also Lina Papadopoulou, ‘Greece’. 90 Issued after judgment C-213/07, Michaniki AE v Ethniko Symvoulio Radiotileorasis and Ypourgos Epikrateias, judgment of Grand Chamber of 16 December 2008, ECLI:EU:C:2008:731. For more detail on this case, see Lina Papadopoulou, ‘Greece’. 91 Panos Kapotas, ‘Case Note: Greek Council of State Judgment 3470/2011’ (2014) 10, EuConst, 162. 92 Martin Loughlin, Foundations of Public Law (Oxford, OUP, 2010) 450. 93 Paul Craig and Menelaos Markakis, ‘EMU Reform’ in Fabian Amtenbrink and Christoph Herrmann, Oxford Handbook of the EU law of Economic and Monetary Union (Oxford, Oxford University Press, 2019 forthcoming), ch 43. 94 www.usay.gr/politiki/voridis-tha-chreiastei-i-antikatastasi-toy-dnt-apo-ena-eyropaiko-nomismatiko-tameio/. 95 www.tovima.gr/2013/12/11/politics/al-tsipras-paranomi-i-troika-nai-sto-eyrwpaiko-nomismatiko-tameio/. 96 www.news247.gr/oikonomia/minyma-stoyrnara-me-protaseis-gia-enischysi-architektonikis-tis-eyrozonisechoyme-anagki-gia-perissotero-eyropi.6522086.html. He holds an equally positive attitude to the proposal for a macroeconomic stabilisation mechanism in EC, COM (2017)822 Communication on new budgetary instruments for a stable eurozone within the Union framework EC.

246  Lina Papadopoulou guarantees for the democratic governance of the EMF). It seems highly unlikely that a Greek Supreme court will challenge this on the basis of ultra vires, due to the use of Article 352 TFEU, unless there is a wider and more durable shift towards Eurosceptic populism in many members of the Union, including Greece. As long as the major parties are in favour of ‘more Europe’, they are expected to hold a similarly positive attitude towards the proposal for a macroeconomic stabilisation mechanism.97 There are no further constitutional obstacles to the implementation of these policies except the obligation to uphold their democratic function with adequate parliamentary surveillance and the possibility of judicial protection of fundamental rights within their frameworks (Article 28(3) Const). Moreover, the enhanced majority of three-fifths stipulated in Article 28(2) Const is required for the transfer of constitutionally vested competences to the European Finance Minister. If this office is adjusted to existing provisions, as proposed, no further constitutional challenge seems probable. However, none of these new proposals has been seriously discussed in the public arena by representatives of the political parties or the mass media (traditional or social). In any case, any treaties concluded outside the formal confines of the EU Treaties would have to comply with EU law.98

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law A.  A General Note In the first period, before the crisis, under the SGP, the ‘Excessive Deficit Procedure’ (EDP, initially Article 104(11) of the Maastricht Treaty), and in particular its ‘corrective arm’, proved to be ineffective, given the fact that it was a lengthy process allowing many Member States to delay measures and ultimately avoid sanctions. No pre-emptive measures were taken, and no supervision of conditionality or any serious kind of supervision took place. Notably, ECOFIN used to have the last word, and it was difficult to reach the necessary majority in order to impose sanctions, even though many eurozone countries were subject to the EDP. At the end of 2004, Greece was the first country to come close to sanctions despite the fact that both Germany and France had previously found themselves in a similar situation.99 As a matter of fact, since April 2002, the Bank of Greece had repeatedly proposed limits on primary expenditure,100 but these proposals were not acted upon. Moreover, Greece had neither expenditure control procedures during the budget preparation phase nor numerical fiscal rules, or rating agencies for fiscal policy. In 2004, Greece delayed taking necessary measures and eventually it only took some temporary ones (in 2005). In 2007, however, the country exited the EDP, despite the fact that the problem had not been solved. This could be explained by the political support given by the then 97 COM (2017)822, EC, COM (2017)827 Proposal for a Council Regulation on the establishment of the EMF, EC, COM (2018) 823 Communication on a European Minister of Economy and Finance. 98 Craig and Markakis, ‘EMU Reform’. This work contains an extensive analysis of all these new proposals concerning the EMU. 99 See the judgment of the CJEU (Full Court) C-27/04 Commission of the European Communities v Council of the European Union, of 13 July 2004, ECLI:EU:C:2004:436. 100 See the Reports by the Governor of the Bank of Greece for the years 2001 (p 65), 2003 (pp 82–84), 2004 (p 78), 2006 (pp 249–52). See also the Intermediate Report on Monetary Policy, October 2008, p 29, and the Reports on Monetary Policy 2008–09, pp 35–37 and the same 2009–10, pp 129–33.

Greece  247 President of the Commission, José Manuel Barroso, to the Greek prime minister at that time, Kostas Karamanlis, in view of the early elections in the same year. Consequently, imprudent economic governance during the next two years caused the deficit not only to exceed the reference value but also to reach the huge figure of 15,4 per cent of the gross domestic product.101 Since the end of 2008, it was known that Greece would again be submitted to the EDP. However, both the then Prime Minister Karamanlis and the Minister of Finance, Alogoskoufis, reassured the Greek nation that the economy was in a good state and protected against the international economic crisis. Greece had already been submitted to the EDP, officially since 27 April 2009, but in practice, since the informal ECOFIN meeting on 3–4 April 2009. The deadline for receiving measures was by the end of six months from April 2009, ie, 27 October 2009. The delay continued for one year, and the measures, due to the early elections on 4 October 2009, were never taken. In 2010, the first Memorandum of Understanding was signed by the Greek government and its creditors to enable Greece to deal with the fiscal crisis, as mentioned earlier. All three MoU were voted upon by parliament on the basis of Article 28(1) Const, since they were not treaties involving the transfer of competences to institutions of international organisations but only political programmes with general policy objectives and the means of achieving them within a given timetable. Moreover, following the recommendations of the Troika, Law 3871/2010 (Government Gazette Α΄ 141/17 August 2010) on ‘Financial Management and Responsibility’, as amended by Law 4270/2014,102 laid down as general principles of fiscal policy the principle of (a) sound financial management, (b) responsibility and accountability, (c) transparency, and (d) sincerity. According to these principles, ‘the management of the assets and liabilities of general government entities, including the country’s natural resources and fiscal risks, must be conducted with due diligence and to ensure fiscal sustainability’ (Art 1 of Law 3871/2010). The same law also introduced three institutions which aimed to safeguard fiscal prudency. These were (a) the development of a four-year Medium Term Financial Strategy Framework (MTFS), (b) the possibility of the Minister of Finance imposing limits on increases in public expenditure, if he deemed it necessary, and (c) the establishment of a ‘Budget Office of the State in Parliament’.

B.  Binding Resolutions for the Ministers in the Council There are no binding parliamentary resolutions for the ministers in the Council, although ministers have to toe the government line. Ministers often communicate informally with the prime minister when they are expected to make decisions of great importance since he bears the principal political responsibility, and he is the one who has chosen the ministers and may dismiss them if they act contrary to government policies. In July 2015, the Greek parliament passed a law (4333/2015) delegating full authority to the prime minister and several other ministers to negotiate the conclusion of the third Memorandum without any specific instruction. This illustrates the extent to which ministers and the prime minister (in the European Council) are not significantly bound by parliament.

101 David Jolly, ‘2009 Greek Deficit Revised Higher’, 15 November 2010, The New York Times, available at www.nytimes. com/2010/11/16/business/global/16deficit.html. 102 Law No 4270 (Government Gazette A΄ 143/28 June 2014) ‘Principles of financial management and supervision (transposition of Directive 2011/85/ EU) – Public accounting and other provisions’.

248  Lina Papadopoulou

C.  Participation of the National Parliament in Secondary Law-Making Generally speaking, the democratic legitimacy and accountability of fiscal and economic policy is controlled like any other adopted policy, ie, through parliamentary and public debate. Accountability and parliamentary scrutiny are perhaps more intensive in the case of fiscal and economic policies because these policies are embodied in the government budget. The voting procedure and approval of the state budget are extra measures of control. In more substantive terms, economic policies are evaluated for their social character (social justice), their reasoning – and rationality, and their effectiveness. Nevertheless, in procedural terms, there are no cases of state budgets being rejected by parliament or instruments responsible for specialised control over the budget. According to Article 70(8) Const, ‘[t]he Standing Orders of Parliament shall specify the manner in which the Parliament is informed by the Government on issues being the object of regulation in the framework of the European Union, and debates on these’. Article 41B of the Standing Orders (‘Opinions on regulatory acts of the European Union’) specifies the constitutional provision, stipulating that the government should address any draft European legislation to the parliament’s Chairperson, as soon as it is communicated to the Council of Ministers, as well as consultation documents. The Chairperson should then call a meeting of the European Affairs Committee (EAC),103 probably together with the other competent Committees. In an expression of distrust, Article 73 Const (on the legislative function of the parliament) stipulates that ’[b]ills pertaining in any way to the granting of a pension and the prerequisites thereof shall be introduced only by the Minister of Finance after an opinion of the Court of Audit’. Moreover, the parliament has rarely taken the opportunity to enter into a political dialogue with the Commission104 or to raise objections about draft European legislation based on the principle of subsidiarity and send ‘reasoned opinions’ to the European Commission.105 In the 2006–07 period, the parliament did not express or address any opinions to the Commission. However, in 2008 it expressed three,106 in 2009 ten,107 in 2010108 and in 2011 four109 in 2012 six110 (though none of the opinions in the period 2010–12 was a reasoned opinion), in 2013 three reasoned opinions (out of four opinions altogether),111 in 2014 and 2015 no opinions at all,112 103 In detail Papadopoulou, ‘Greece’. 104 Within the framework of the political dialogue, national parliaments can send opinions to the Commission, which endeavours to reply within three months. Opinions can concern Commission documents or policy areas for which the Commission is competent. 105 See the Annual Reports of the Commission on Relations between the European Commission and National Parliaments; all reports may be found at www.ec.europa.eu/dgs/secretariat_general/relations/relations_other/npo/ political_dialogue_en.htm. The draft legislative acts notified to each national parliament, in accordance with the procedure laid down in Art 12 TEU, amounted to 79 in 2012, 110 in 2013, 42 in 2014, 38 in 2015, 93 in 2016, and 95 in 2017 (for the relevant statistics see www.europarl.europa.eu/relnatparl/en/about/subsidiarity.html. 106 Report, Brussels, 07 July 2009, COM(2009) 343final. 107 Report, Brussels, 02 June 2010, COM(2010) 291final. 108 Report, Brussels 10 June 2011, COM(2011) 345final. 109 Report, Brussels 10 July 2012, COM(2012) 375final. 110 Report, Brussels 30 July 2013, COM(2013) 565final. 111 Two reasoned opinions may be noted, both submitted in 2013: the first one concerned COM (2013) 151 on ‘Conditions of entry and residence of third-country nationals for purposes of research, studies, pupil exchange, training, voluntary service and au pairing’ as against Art 79(5) TFEU. The second one concerned COM (2012)788 on ‘Approximation of the laws, regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of tobacco and related products’. In both cases, the Commission replied to the Hellenic parliament’s objections, which were based on alleged non-compliance with the principle of subsidiarity, purporting that these objections were not valid. Brussels, 5 August 2014 COM(2014) 507 final. 112 However, a number of objections were raised by many parliaments, including the Greek one, about the Tobacco Products Directive concerning the number and content of the provisions empowering the Commission to adopt delegated

Greece  249 in 2016 one113 and finally, only one in 2017.114 So far, the Greek parliament has not made use of the Protocol on subsidiarity in order to participate in secondary law-making on its own initiative,115 except for the co-signing in 2017 of the ‘Own Initiative Opinion on the transparency of political decision-making in the European Union’. As for the implementation116 of the SGP, given that the latter is based on regulations (Council Regulations (EC) 1466/97 and 1467/97, and Regulation (EU) 1173/2011), there is no need for it to be implemented by law or normative act for it to become part of the national legal order. Regulations rank above the common national laws and are binding on all state institutions. The revised SGP (2005, 2011) and the Six Pack and Two Pack legislation, in general, has provided the means to strengthen the control of national fiscal and economic policy. Within the context of programme surveillance, Greece has put in place all the necessary mechanisms in order to comply with the new architecture of European economic governance. Law 3832/2010 made the Hellenic Statistical Agency an independent agency and Law 4389/2019 created the Independent Authority for Public Revenue (IAPR) of the Hellenic Republic. Article 36A of Law 3871/2010 created the Greek Parliamentary Budgetary Office, and Law 4270/2014 (further modified by Law 4336/2015) created the Hellenic Fiscal Council, acting as an independent agency with important consultative powers and guarantees of personal and functional independence. Furthermore, Law 4270/2014 transcribed Directive 2011/85 of the Six Pack and introduced within the national, budgetary legal framework (Code of Budget Accounting) the procedures allowing for the drafting, during the past seven years, of Medium-Term Fiscal Strategy Frameworks, which have since then been regularly voted upon by parliament.

D.  EU or Non-EU Instruments Employed by the Courts Given the system of judicial review described above, treaties under public international law and EU law are not directly the subject of judicial control by the courts. Consequently, treaties such as the TSCG and the TESM could not be directly contested before the courts. Only specific measures taken by the government based on parliamentary statutes to implement these Treaties and after they are applied (unless implemented through a Presidential Decree, which is controlled pre-emptively) could be judicially contested. Equally – on the basis of EU law – all courts are obliged to apply the same law and have the competence to send preliminary questions to the CJEU, which they rarely do (eg, a preliminary question would have been completely expected in the PSI case decided by the CoS). The implementation of the laws generated by the Memoranda, which were challenged for their constitutionality before the courts (notably those imposing cuts in pensions and salaries), led Greek jurisprudence to devise new constitutional limits and principles for the protection of citizens against legislative interventions. One such limitation is a minimum living wage,117 which stems mainly from Article 2 Const (human dignity).118 Another limitation is the obligation to acts in accordance with Art 290 TFEU, the size of the health warnings on packages and the proposal to ban slim cigarettes. See Report, Brussels, 2 July 2015 COM(2015) 316 final. 113 Proposal for a Regulation of the European Parliament and of the Council on the definition, presentation and labelling of spirit drinks, the use of the names of spirit drinks in the presentation and labelling of other foodstuffs and the protection of geographical indications for spirit drinks. 114 Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2016/399 concerning the rules applicable to the temporary reintroduction of border controls at internal borders. 115 www.ec.europa.eu/dgs/secretariat_general/relations/relations_other/npo/greece/unsolicited_en.htm. 116 Concerning the implementation of EU law in general, see Papadopoulou, ‘Greece’. 117 CoS (Plenum) 2287/2015, 734/2016. 118 ‘Respect and protection of the value of the human being constitute the primary obligations of the State.’ See also art 21 para 1 subpara b Const, as amended in the 2019 revision.

250  Lina Papadopoulou treat some categories of public servants in a privileged way because they serve important functions of the state (such as justice, public order, security, tertiary education and health), ie, those public servants belonging to the so-called ‘core of the state’ – a heavily criticised concept119 ­(especially judges, military personnel and the police).120

V.  Resulting Relationship between EMU-Related Law and National Law As mentioned above, Greek courts can control the constitutionality of legislation only incidentally, that is, in specific cases. Furthermore, in order for a case to be brought before the courts, the parties must have legal standing. It is hard for legal standing to be recognised in cases concerning conformity with EMU rules because this version of interest can hardly be personalised. However, enforcement through the courts can be achieved within the framework of a concrete case. Courts are then asked to balance the budgetary situation of the whole country with the hardship caused by legislative choices to specific persons or even whole categories of persons, as can be seen in the cases concerning salary and pension cuts, and so on. Moreover, the development of the EMU after 2011 coincided with the extreme fiscal crisis in Greece. Thus, all resources were directed to dealing with the austerity measures. The (un) constitutionality of the Memoranda has been discussed and debated ad nauseam and ad tedium. However, public discourse on EMU steps taken or future has been poor and seemed rather a luxury in a deeply polarised country, in which legal argumentation served political interests and cleavages. Within this context of black and white, the one, the Eurosceptic and anti-memorandum side was pleading for either unconstitutionality in toto, while the other side treated the bail-out measures as ‘business as usual’ insisting on the resilience of the Constitution.121 Consequently, in this mental state and political discourse, no reasoned discussion took place, and further constitutional impediments have been proposed by the relevant jurisprudence. Courts were after all too overloaded with anti-austerity measures cases, in which they tried to balance individual interests with the salvation of the country. In the first phase, the ‘acute financial crisis’ (CoS 668/2012, 35) and the ‘threat of an immediate collapse of the national economy’ (2287/2015, para 7) were deployed to assess the situation and the austerity measures. However, there is a persistent, chronic, troubling democracy deficit, which cannot be ignored. It is connected with the democratic architecture of the whole new European economic governance, which seems to be escaping democratic accountability beyond national borders and deepens the European political deficit coined with the weakening and discrediting of the representative bodies. Within this context, political decisions lack visibility, and those taking them lack accountability. Parliament is losing its power and the governments seem to be the executives of the will of the out-of-state institutions and not of the electorate. The function of the representative system lacks legitimation. Given the extroverted character of the clause of Article 28(3) Const, the diagnosis and mending of the flaws in the design of the EMU need to take place at European level.

119 See Vlachogiannis, ‘From submission to reaction’, 75. 120 CoS (Plenum) 2192/2014 (armed forces), but also 4741/2014 (concerning University professors). See also Court of Audit, 4327/2014 (Plenary) of 17 December 2014 (cuts in judges’ pensions unconstitutional). 121 Antonis Manitakis, ‘The impressive resilience of the Greek Constitution in the current financial crisis of Europe’ in Lina Papadopoulou, I Pernice and J H H Weiler (eds) Legitimacy Issues of the European Union in the Face of Crisis (Baden-Baden, Nomos, 2017) 217.

Greece  251 Accordingly, the basic insight of the paper is that generally and realistically speaking, at the constitutional level, there is ground for further integration. This is so, as long as the latter is founded on the principles of democracy and the protection of fundamental rights, without systemic failures in either of these two fields. EU law enjoys supremacy over the common law but ultimately also over constitutional law, even if there are some voices (indicated above) to the contrary. Consequently, no changes have been made at the level of the Member States to ensure the democratic legitimacy of public power and to ensure the continuation of the system of checks and balances in national fiscal and economic governance other than those required by the lender states and the general EU and international architecture of the EMU. The only critical point for the relationship between the Greek Constitution and EU law, from a national point of view, remains the respect of democracy, representation and human rights, as provided for in Article 28(3) Const and the preservation of sovereignty in the sense of the competence of competence residing with the state.

References G Alogoskoufis, ‘The Two Faces of Janus: Institutions, Policy Regimes and Macroeconomic Performance in Greece’ (1995)10 Economic Policy, 149. T Antoniou, Europäische Integration und griechische Verfassung. Ein Beitrag zur Auslegung des Artikel 28 der griechischen Verfassung von 1975 (Frankfurt am Main, Bern, New York, Peter Lang, 1985). F Arnaoutoglou, ‘Grèce: Le Conseil d’Etat’ (Greece: The Council of State) in J Iliopoulou-Stranga (ed), Cours suprêmes nationales et cours européennes: concurrence ou collaboration? (Brussels, Bruylant, 2007) 179. X Contiades and I Tassopoulos, The Impact of the Financial Crisis on the Greek Constitution, in X Contiades (ed), Constitutions in the Global Financial Crisis. A Comparative Analysis (London, Routledge, 2013) 195. X Contiades and A Fotiadou, ‘On Resilience of Constitutions. What Makes Constitutions Resistant to External Shocks?’(2015) 9, Vienna Journal of International Constitutional Law, 3. K Chryssogonos and S-I Koutnatzis, ‘Demokratie und Verfassung in der Zeit der Krise: Überblick zu Ursachen und Implikationen aus der Sicht Griechenlands‘, in D Kübler and N Stojanovic (eds), Demokratie in der Europäischen Union/Democracy in the European Union (Zürich, Schulthess Verlag, 2014) 31. K Chryssogonos and S-I Koutnatzis, ‘Die finanzielle Tragödie Griechenlands aus verfassungsrechtlicher und institutioneller Sicht: Feudalistische Grundstrukturen hinter demokratischer Oberfläche?‘ (2012) 60 Jahrbuch des Öffentlichen Rechts der Gegenwart, 402. K Chryssogonos and G Pavlidis, ‘The Greek Debt Crisis: Legal Aspects of the Support Mechanism for the Greek Economy by Eurozone Member States and the IMF’ in Aristidis Bitzenis, Ioannis Papadopoulos and Vasileios Vlachos (eds), Reflections on the Greek Sovereign Debt Crisis: The EU Institutional Framework, Economic Adjustment in an Extensive Shadow Economy (Cambridge, Cambridge scholars Publishing, 2013) 275. K Chryssogonos, T Zolotas and A Pavlopoulos, ‘Excessive Public Debt and Social Rights in the Eurozone Periphery – The Greek Case’ (2015) 22 MJ 592. P Craig and M Markakis, ‘EMU Reform’ in F Amtenbrink and C Herrmann, Oxford Handbook of the EU law of Economic and Monetary Union (Oxford, Oxford University Press, 2019 forthcoming). Y Drossos, ‘Constitutional discourse and economic crisis’ (2011) Journal of Administrative Law, 767. Y Drossos, Love’s Labour’s Lost: fighting austerity and crisis with obiter dicta. A gloss on the expediency of constitutional justice in times of crisis (2013) available at www.constitutionalism.gr/drossos_constitutiona l-justice-in-times-of-crisis/. European Commission, Report presented under Article 8 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, 22.2.2017, C(2017) 1201 final, available at www. ec.europa.eu/info/sites/info/files/c20171201_en.pdf. European Commission, Report on Greek Government deficit and debt statistics. Brussels, 8 January 2010. European Commission, Standard Eurobarometer 76, Autumn 2011, available at www.ec.europa.eu/public_ opinion/archives/eb/eb76/eb76_en.htm.

252  Lina Papadopoulou D Evrigenis, ‘Aspects institutionnels et juridiques de l’enlargissement. L’impact de l’adhesion sur les institutions et le droit des pays candidats: Grèce’ in W Wallace and I Herremann, A Community of Twelve. The Impact of Further Enlargement on the European Communities (Bruges, De Tempel, 1978) 135. A Fatouros, ‘International Law in the New Greek Constitution’ (1976) 70 The American Journal of International Law, 492. G Gerapetritis, ‘The Hellenic Council of State vis-à-vis the European Court of Justice: From voluntary seclusion to inevitable constitutional dialogue’ in N Alivizatos (coord.) Essays in honour of Georgios Kassimatis (Berlin, BWV Berliner Wissenshafts Bruylant, 2004) 83. J Iliopoulos-Strangas, ‘Constitution hellénique et intégration européenne’ in Association des Constitutionnalistes Grecs / Association française des Constitutionnalistes (ed), Défense nationale – Intégration européenne: Les réponses constitutionnelles (Athens, Brussels, Bruylant, 2002) 71. D Jolly, ‘2009 Greek Deficit Revised Higher’, 15 November 2010, The New York Times, available at www. nytimes.com/2010/11/16/business/global/16deficit.html. İ Ö Kaboğlu and S-I Koutnatzis, ‘The Reception Process in Greece and Turkey’ in H Keller and A Stone Sweet (eds), A Europe of Rights – Assessing the Impact of the ECHR on National Legal Systems (Oxford, Oxford University Press, 2008) 451. I Kamtsidou, ‘L’intérêt public aux temps de crise’ (2013) 96 Recherches Internationales, 91. I Kamtsidou, Un état d’exception nullement exceptionnel. La crise souveraine et le crépuscule de la Constitution. Un aperçu historique (2015), 9, available at www.constitutionalism.gr/2015_kamtsidou_un-etat-dexceptio n-nullement-exceptionnel/. P Kapotas, ‘Case Note: Greek Council of State Judgment 3470/2011’ (2014) 10, EuConst, 162. G Karavokyris, ‘Limitations, restrictions et dérogations aux droits. La normalité d’une crise exceptionnelle: le cas grec’ in H Gaudin (ed), Crise de l’Union. Quel régime de crise pour l’Union Européenne? (Paris, Editions Mare et Martin, 2018) 189. G Katrougkalos, ‘The ‘side-constitution’ of the Memorandum and the other way’ (2011)59 Nomiko Vima, 231. I Krateros, ‘Greece’ in R Blackburn and J Polakiewicz (eds), Fundamental Rights in Europe. The European Convention on Human Rights and its Member States, 1950–2000 (Oxford, Oxford University Press, 2001) 358. A Kyriakidis and euanddemocracy, Brief on the 9 May 2016 Eurogroup Statement on Greece, available at: www.euanddemocracy.ideasoneurope.eu/2016/05/09/brief-9-may-2016-eurogroup-statement-greece/. A Kyriakidis, ‘The Greek Crisis 2009-2015: A Comprehensive Analysis of the EU-IMF Financial Assistance Programs’ (2016) 24 IJES, 7. M Loughlin, Foundations of Public Law (Oxford, OUP, 2010). A Manitakis, Greek Constitutional Law (Thessaloniki, Sakkoulas, 2004). A Manitakis, In Greece, Constitutional Changes Without Constitutional Revision, 14 March 2016, available at www.huffpost.com/entry/constitutional-changes-wi_b_9459136?guccounter=1. Antonis Manitakis, ‘The limits of the Community’s competence and their constitutional validation’ (in Greek) (1984), To Syntagma, 472. A Manitakis, ‘The impressive resilience of the Greek Constitution in the current financial crisis of Europe’ in L Papadopoulou, I Pernice and J H H Weiler (eds), Legitimacy Issues of the European Union in the Face of Crisis (Baden-Baden, Nomos, 2017) 217. P Mantzoufas, ‘The “golden” fiscal rule in the Constitution – Solution of the problem or one more hurdle for the economic adjustment and the protection of rights’ in C Akrivopoulou and N Papachristos (eds), The Challenge of Constitutional Revision (Athens-Komotin, Sakkoulas 2013) 123. A Marketou, ‘Greece: Constitutional Deconstruction and the Loss of National Sovereignty’ in T Beukers, B de Witte and C Kilpatrick (eds), Constitutional Change through Euro-Crisis Law (Cambridge, Cambridge University Press, 2017) 179. M Meng-Papantoni, ‘Legal Aspects of the Memoranda of Understanding in the Greek Debt Crisis’ (2015) 18 ZEuS, 3. P Miliarakis, Public International Law and Hellenic Constitution (Athens, Livani Publishing Organization, 2008). E Oltheten, G Pinteris and T Sougiannis, ‘Greece in the European Union: policy lessons from two decades of membership’ (2003) 43 The Quarterly Review of Economics and Finance, 774, 776. L Papadopoulou, ‘Can constitutional rules, even if “golden”, tame Greek public debt?’, in M Adams, F Fabbrini and P Larouche (eds), The Constitutionalisation of European Budgetary Constraints (London, Bloomsbury Publishing, 2014) 223.

Greece  253 L Papadopoulou, ‘Die implizite Änderung der griechischen Verfassung durch das EU-Recht’ (2014) 74, ZaöRV 141. L Papadopoulou, ‘Greece’ in S Griller et al (eds), National Constitutions and EU Integration (Oxford, Hart Publishing, 2020 forthcoming). L Papadopoulou, ‘Schooling as a basis for naturalisation: Exploring the educational and philosophical underpinnings of a legal debate in Greece’ in A Viviani (ed), Global Citizenship Education, Multiculturalism and Social Inclusion in Europe (2018) 201, 205ff, available at www.academia.edu/36310890/2018_ Schooling_as_a_basis_for_naturalisation_Exploring_the_educational_and_philosophical_under pinnings_of_a_legal_debate_in_Greece. V Skouris, ‘Constitutional Disputes and Judicial Review in Greece’ in C Landfried (ed), Constitutional Review and Legislation (Baden-Baden, Nomos, 1988) 177. P Spyropoulos and T Fortsakis, Constitutional Law in Greece (Alphen aan den Rijn, Kluwer Law International, 2009). V Tzemos, ‘Democratic state and the rule of law, difficult economic facts and a constitutional debt brake clause’ (2011) Theoria kai Praxi Dioikitikou Dikaiou, 1. E Venizelos, Lectures on Constitutional Law (Thessaloniki, 1991). E Venizelos, ‘State Transformation and the European Integration Project – Lessons from the financial crisis and the Greek paradigm’ (2016) 130, CEPS Special Report, 1. C Vernardakis and B Temel, ‘Effects of Economic and Monetary Union on the Greek Political System: Dimensions of the Current Crisis’ in B Temel (ed), The Great Catalyst – European Union Project and lessons from Greece and Turkey (Lanham, Lexington Books,2014) 83. A Vlachogiannis, ‘From submission to reaction: The Greek Courts’ stance on the financial crisis’ in Z Szente and F Gárdos-Orosz, New Challenge to Constitutional Adjudication in Europe – A comparative Perspective, (London, Routledge, 2018) 72. C Yannakopoulos, ‘Un Etat devant la faillite: entre droit et non-droit’ in Zaradny / Wolff / Fleury Graff (dir), La fin du droit ?, Actes du colloque des 5 et 6 décembre 2013 (Paris, Editions Mare et Martin, 2013).

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10 Spain The Impact of the EMU on the Spanish Constitution Following the Euro Crisis: A Stress Test for the Europeanisation of the Constitutional Order DIANE FROMAGE, MARIBEL GONZÁLEZ PASCUAL, JOAN SOLANES MULLOR, AIDA TORRES PÉREZ

Abstract: The Economic and Monetary Union (EMU), and particularly the euro crisis, have created a series of challenges for the Spanish constitutional system. The crisis had a profound impact on basic constitutional principles, such as the welfare state and the model of territorial political decentralisation. This chapter addresses the formal adaptation of the Spanish constitutional order to the EMU framework. We will analyse the impact on the basic principles of the Constitution, considering the Spanish Constitutional Court’s (SCC) case law regarding budgetary and financial stability. Also, we will explore the role of all national institutions, especially the parliament, regarding the adaptation of the EMU framework in response to the crisis and highlight the shortfalls of the Spanish parliamentary system characterised by a parliament barely involved in EU affairs. The EMU reforms that were agreed and implemented by the EU and national governments encountered little contestation from the Spanish courts and parliament. There is still a strong pro-European consensus in Spain, which has enabled the smooth integration of EMU reforms. Nonetheless, considering the strong impact of the crisis on Spain, a shift in this EU-friendly trend might be expected in the future. Key words: euro crisis, EMU, Spanish Constitution, Spanish Constitutional Court, budgetary stability, social rights, regionalism, democratic legitimacy, parliamentary democracy.

I.  Main Characteristics of the National Constitutional System, and Constitutional Culture A.  Overview of the Spanish Constitutional System The Spanish Constitution of 1978 (SC) is the result of a complex bargaining process between all political forces that intervened after a long dictatorship.1 The transitional period to democracy 1 Víctor Ferreres Comella, The Constitution of Spain. A Contextual Analysis (Oxford and Portland, Hart Publishing, 2013), 12–24.

256  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez after the death of the dictator Franco in 1975 led to a consensus in favour of democracy among main political parties represented in parliament after the 1977 elections. The constitutional text adhered to the predominant post-war European continental constitutionalism and embraced the main formal and substantive characteristics of European constitutional experiences. The SC and the constitutional debates in this transitional period were strongly influenced by German and Italian constitutionalism. The SC is the supreme law of the land and is rigid. Depending on the constitutional matter to be amended, there are two procedures. A qualified procedure (Article 168 SC) is needed for amending the Preliminary Part (general principles of the constitutional system), some content of Part I (fundamental rights enshrined in Division 1), Part II (matters of the Crown) and a total revision of the Constitution. In these cases, a two-thirds majority of both parliamentary chambers (Congress and Senate) is required to initiate the amendment process. A general election then follows it, and a two-thirds majority of both chambers must also support the final text. The procedure is completed by a compulsory referendum. A less demanding procedure (Article 167 SC) should be followed in all other matters. It entails a qualified three-fifths majority of both parliamentary chambers, no general elections are required, and the referendum is not compulsory. The supremacy and rigidity of the Constitution are secured by the SCC. As such, Spain adheres to the European centralised model of the constitutional review of legislation.2 The SCC is the final interpreter of the Constitution. It is also the only Court which can declare measures unconstitutional and annul norms with the force of legislation (norms approved by the parliament or, exceptionally, by the government). The constitutional challenge (recurso de inconstitucionalidad) is the main constitutional review mechanism (Article 161(1)(a) SC). The ordinary judiciary has the duty to apply the Constitution but can only disapply, and in some cases annul, rules and regulations without the force of legislation, ie, norms approved by the central, regional and local governments.3 When dealing with norms having the force of legislation, the ordinary judiciary can only send a preliminary reference to the SCC which decides on the matter (Article 163 SC). Both the constitutional challenge and the preliminary reference are forms of ex post constitutional review mechanisms. Ex ante constitutional review is only conducted for treaties (Article 95 SC) and the Statutes of Autonomy, which are the highest laws of the autonomous communities.4 There are three key aspects of the SC. The first aspect is a representative democracy, which is shaped in a bicameral parliamentary system where the president of the government is elected by parliament. The second aspect is a limited system of government, which is ensured through the principles of separation of powers, the rule of law and the protection of fundamental rights. The third key aspect is territorial decentralisation of political power through the so-called State of Autonomies (Estado de las Autonomías). Spain is, nevertheless, a unitary state (Article 2 SC), in which the sovereignty is placed in the unique Spanish demos, yet a high level of political decentralisation has taken place. The autonomous communities have legislative and executive powers in several fields according to the criteria enshrined in the Constitution (Article 149(1) SC) and the Statutes of Autonomy. The SCC has recognised the political autonomy of the autonomous communities as a cornerstone of the Spanish territorial model of organisation.5 Budgetary and financial autonomy is also part of the recognised political autonomy of the autonomous

2 For an overview on the introduction in Europe of the centralised model of judicial review and the Spanish experience, see Rafael Jiménez Asensio, Los Frenos del Poder. Separación de Poderes y Control de las Instituciones (Madrid, Barcelona, Buenos Aires and Sao Paulo, Marcial Pons and IVAP, 2016), 157–83. 3 Art 6 Organic Law 6/1985 of 1 July, of the Judicial Power. 4 Art 79 Organic Law 2/1979 of 3 October, of the Constitutional Court. 5 For all, see ECLI:ES:TC:1992:13.

Spain  257 communities (Article 156 SC). The SCC is the final arbiter in the allocation of powers and disputes between the central government and the autonomous communities.

B.  The Constitutional Culture The consensus reached in the transitional period was considered for a long time as the main value to preserve after the enactment of the Constitution and its enforcement.6 The rigidity of the constitutional text and the consensual approach makes the amendment of the Constitution difficult. Accordingly, the text has been amended only twice by introducing EU-related requirements. In 1992, Article 13(2) SC was revised in order to ratify the Maastricht Treaty and grant EU citizens the right to stand as candidates in municipal elections. In 2011, Article 135 SC was amended in the context of the economic crisis in order to introduce, inter alia, the ‘balance budget rule’ as a requirement of the Treaty on Stability, Coordination and Governance (for further details about these two constitutional amendments, see Section II.B below). The same consensus, which has prevented formal amendment of the Constitution, also left the constitutional text open-ended and relevant matters were agreed in principle but not in detail. In the context of this open-ended constitutional text, the SCC had a key role. This was especially the case in the 1980s when the SCC consolidated and developed the fundamental constitutional aspects enshrined in the SC – representative democracy, limited government and political decentralisation. Hence, the SCC was called to define and develop the ‘consensual’ spirit of the constitutional text. In this context, the SCC and scholars have embraced a living constitutionalism theory of interpretation, taking the Constitution as a living instrument, which is to be interpreted according to the current historical and social circumstances. This evolutionist stand allowed the constitutional text to face new challenges and needs over time by means of interpretation and despite the lack of formal amendments.7 The constitutional culture in Spain has also been open, from the very beginning, to external sources of inspirations and experiences. The rather ambiguous openness of the constitutional text created out of the minimum consensus achieved in the transitional period, and the lack of immediate past references due to the long dictatorship, left the door open to external experiences. The constitutional text itself mandates that fundamental constitutional rights must be interpreted in accordance with the human rights treaties ratified by Spain (Article 10(2) SC). The European Convention on Human Rights and the case law of the Strasbourg Court have been decisive in the interpretation and application of the Spanish constitutional bill of rights.8 Despite the fact that there is no specific European integration clause in the constitutional text, Article 93 SC allows for the ordinary application of the principles of primacy and direct effect of EU law. Again, Spanish constitutional law has been sensitive and open, including EU institutions and EU law. The ordinary jurisdiction courts, especially lower courts, have relied on the preliminary reference proceeding and the Court of Justice of the European Union (CJEU) in solving conflicts between national law and EU law.9 The SCC has been more reluctant in engaging in judicial dialogue with the CJEU. Only one preliminary reference has been sent by the SCC 6 Víctor Ferreres Comella, ‘Una defensa de la rigidez constitucional’ (2000) 23 Cuadernos de Filosofía del Derecho – DOXA 32, 32. 7 Victor Ferres Comella, The Constitution of Spain, 58–9. 8 Alejandro Saiz Arnaiz, La apertura constitucional al derecho internacional y europeo de los derechos humanos. El artículo 10.2 de la Constitución española (Madrid, Consejo General del Poder Judicial, 1999) 134–71. 9 Fernando Gómez Pomar and Karolina Lyczkowska, ‘Spanish Courts, the Court of Justice of the European Union, and Consumer Law’ (2014) 4 Indret, Revista para el Análisis del Derecho 1, 7–10.

258  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez so far to the CJEU – the Melloni case – and the SCC does not consider EU law as a parameter for deciding the compatibility of ordinary legislation and the Constitution.10 In addition, the SSC has established that although the principles of primacy and direct effect of EU law are compatible with the Spanish constitutional principles, in some exceptional cases, the Spanish Constitution prevails.11 In this regard, following the lead of the German Federal Constitutional Court, the SCC established a counter-limits doctrine. According to that doctrine, EU law cannot contravene the state sovereignty, the basic constitutional structures, and the system of values and fundamental principles enshrined in the Constitution, in particular, fundamental rights.12 However, the vagueness of the doctrine and its non-application so far limit its practical effects.

C.  Critical Developments Nowadays, the Spanish constitutional system is under pressure. The economic and financial crisis has had a tremendous impact in Spain since 2008, especially in the social welfare state and social rights spheres.13 The SCC has faced criticism because of its attitude towards austerity measures in the context of the economic crisis.14 The SCC always had a deferential attitude towards the economic decisions of the political powers and its reaction in the economic crisis emphasised this position.15 Section III.B addresses in detail the impact of the crisis in the Spanish social welfare state. In addition, several corruption scandals discredited the entire institutional system, including the constitutional structures. However, today the Catalan secessionist movement is the main challenge of the Spanish constitutional system.16 The Spanish territorial model of the organisation of power is challenged by part of the Catalan society which does not accept unitarism and the shortfalls of the political decentralisation path taken in 1978. The reaction of the central government and the SCC in reinforcing unitarism and the resistance of the Catalan secessionist movement claiming independence or demanding an entire reorganisation of the Spanish state will shape the agenda of Spanish politics for the coming years. In addition, Section III.A also highlights the impact of the EMU in the political autonomy of the autonomous communities. For these reasons, there have been voices for at least a partial amendment of the 1978 Constitution and an update of the constitutional consensus framed in the transition to democracy. The constitution of the parliamentary Commission on the Reform of the Territorial Model is an example of the current constitutional debates, which include how to improve the territorial model and the necessity and suitability of amending the Constitution.

10 ECLI:ES:TC:2015:232, para 4. 11 ECLI:ES:TC:2004:1D. 12 Ibid. at para 2. 13 Maribel González Pascual, ‘Austerity Measures and Welfare Rights: the Spanish Constitutional System under Stress’ (2014) 1–2 European Journal of Social Law, 116, 116–7. 14 Maribel González Pascual, ‘Constitutional Courts before Euro-crisis law in Portugal and Spain: A comparative prospect’ (2017) 4–1 e-Publica, Revista Electrónica de Direito Público, 111, 119; Joan Solanes Mullor, ‘The right to housing and the protection of family life and vulnerable groups: European judicial activism’ in Maribel González Pascual and Aida Torres Pérez (eds), The Right to Family Life in the European Union (Abingdon and New York, Routledge, 2017), 214, 214–5. 15 See ECLI:ES:TC:2014:119. 16 For a first approximation to the Catalan crisis, see Víctor Ferreres Comella, ‘The Independence Vote in Catalonia–The Constitutional Crisis of October 1’ (2017) Int’l J Const L Blog, Oct 4 (www.iconnectblog.com/2017/10/iconnect-symposium-the-independence-vote-in-catalonia-constitutional-crisis).

Spain  259

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  General Constitutional Provisions on International Treaties as the Foundation of EMU Membership The Spanish Constitution lacks specific rules regarding EU/EMU membership, and as such, the general rules on treaties apply. The Constitution distinguishes three types of treaties according to the role played by parliament. First, the transfer of sovereign powers to an international organisation requires parliamentary approval through organic law (Article 93 SC). This type of norm requires the support of an absolute majority in Congress. Second, legislative consent by a simple majority is necessary in the case of treaties on specific matters, such as treaties that involve fundamental rights or financial obligations for Spain (Article 94(1) SC). Third, in all other instances, the government shall simply inform parliament of the conclusion of treaties and agreements (Article 94(2) SC). The constitutional foundation of EU and EMU membership is premised upon Article 93 SC. Although Article 93 SC does not explicitly mention the EU, it was drafted in view of the accession of Spain to the European Communities. In July 1977, Prime Minister Adolfo Suárez had officially asked for accession, which only took place on 1 January 1986. Accession to the EU ordered the unanimous support of all political parties, and the negotiations started in February 1979, after the Constitution had been enacted.17 The negotiations ran in parallel with an intense process of transformations in Spain to establish a democratic system and develop the model of political decentralisation. After the failed coup d’état in 1981, the European Parliament favoured an acceleration of the negotiations to contribute to strengthening the young d ­ emocracy in Spain. The Treaty on the accession to the EU18 and successive amendments to the EU Treaties were authorised following Article 93 SC. The function of this Article was to authorise the transfer of powers derived from the Constitution to an international organisation. Indeed, the SCC declared that Article 93 SC is the ‘ultimate foundation’ of Spain’s incorporation into the process of European integration and the bond with EU law.19 In addition, the text of Article 93 SC does not provide for any substantive limits to the transfer of powers. Nonetheless, in 2004, the SCC argued that the Constitution contained inherent substantive limits to integration. These limits are the respect for state sovereignty, basic constitutional structures, and the system of values and fundamental principles enshrined in the Constitution, in particular, fundamental rights.20 At the same time, Article 93 SC opens up the Constitution to EU law. European integration has impacted the diverse spheres of the constitutional order such as the allocation of powers between the central government and the autonomous communities, the economic constitution, or the domestic system of norms.21

17 Antonio Bar Cendón, ‘España y la UE: objetivo ideológico y proyecto político’ (2018) 101 Revista de Derecho Público 777, 777. 18 Organic Law 10/1985, 2 August, authorising the accession of Spain to the European Communities. 19 ECLI:ES: TC: 2004:1D, para 2. 20 ECLI:ES: TC: 2004:1D, para 2. 21 Pablo Pérez Tremps, Las reformas de la Constitución hechas y no hechas (Valencia, Tirant lo Blanch, 2018) 29.

260  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez In the context of the eurozone crisis, the EU Member States turned to international instruments outside of the EU framework22 to respond to the dramatic public debt crisis in several countries and the ensuing challenges for the EMU. These instruments were mainly (1) the Treaty establishing the European Stability Mechanism (ESM), signed by 17 eurozone states on 1 February 2012, to ensure the stability of the euro and (2) the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG), the so-called ‘Fiscal Compact’, signed by 25 EU Member States on 2 March 2012, which set a compulsory limit to the structural deficit and strengthened the mechanisms of coordination, supervision, and economic governance. The TSCG was qualified as an Article 93 SC type of treaty and obtained legislative consent by organic law.23 It was understood that Articles 4 and 5 TSCG, among others, attributed to EU institutions the exercise of executive and judicial powers regarding the procedures for the approval and execution of budget and public debt, regulated in Articles 134 and 135 SC. The Treaty was approved by an overwhelming majority in Congress of 311 deputies out of 350 (only 19 voted against). The ESM was qualified as an Article 94(1) SC type of treaty, since it involved obligations for the public treasury, and its ratification was authorised by Congress and Senate.24 Therefore, the approval and ratification of the EMU-related instruments followed the general constitutional provisions on treaties and did not encounter any legal or political obstacles from a domestic perspective. Finally, regarding the place of treaties within the legal system, the relevant constitutional provision is Article 96 SC. According to it, treaties may only be derogated from, modified or suspended in the way provided for by the respective treaty or the rules of general international law. Based on this provision, treaties are considered as ranking above ordinary legislation. Hence, in case of a clash between a treaty and any piece of domestic legislation, the treaty shall prevail. With regard to the place of the Constitution vis-à-vis treaties, from the constitutional perspective, it is understood that the Constitution ranks above treaties, and the SCC is granted powers for the ex ante constitutional review of treaties (Article 95 SC). At the same time, the place of EU law within the domestic legal system has received specific consideration. Although the Constitution remains silent on this issue, the SCC accepted the primacy of EU law over domestic legislation on the grounds of Article 93 SC because it authorises the transfer of sovereign powers to an international organisation. Nonetheless, the SCC did not embrace the primacy of EU law over the Constitution itself. In Declaration 1/2004, regarding the compatibility between the ill-fated Treaty establishing a Constitution for Europe and the Spanish Constitution, the SCC (rather formalistically) distinguished between the primacy of EU law and the supremacy of the Constitution.25 It argued that the primacy of EU law did not impinge upon the supremacy of the Constitution, since the Constitution was the ultimate source regarding the validity of domestic legislation, whereas the clash with EU law turned domestic legislation inapplicable, but not invalid. Hence, the Constitution was still the supreme law of the land.26 To conclude, the constitutional foundations of Spain’s EMU membership and related instruments reside on the general provisions on treaties. At the same time, the SCC has acknowledged 22 Bruno De Witte, ‘Euro Crisis Responses and the EU Legal Order: Increased Institutional Variation of Constitutional Mutation?’ (2015) 11(3) European Constitutional Law Review, 434. 23 Organic Law 3/2012, 25 July, authorising the ratification of the TSCG; ratified on 9 August 2012, and published in the State Official Bulletin on 2 February 2013. 24 Ratified on 21 June 2012 and published in the State Official Bulletin on 4 October 2012. 25 ECLI:ES: TC: 2004:1D, para 4. 26 Antonio López Castillo, Alejandro Saiz Arnaiz and Víctor Ferreres Comella, Constitución española y Constitución europea. Análisis de la Declaración del Tribunal Constitucional (DTC 1/2004, de 13 de diciembre) (Madrid, Centro de Estudios Políticos y Constitucionales, 2005); Aida Torres Pérez, ‘The Judicial Impact of European Law in Spain’ (2011) 30 Yearbook of European Law 159, 167.

Spain  261 the specificity of EU law and confirmed the primacy of EU law over domestic legislation on the grounds of Article 93 SC. Moreover, the SCC held that Article 93 SC contains a substantive dimension in terms of limits to integration, even though they have lacked any bite in practice. Is Article 93 SC enough to serve as the constitutional foundation of European integration at present?27 Several authors have claimed that the Constitution should be amended to constitutionalise Spain’s EU membership and include a ‘European integration clause’.28 There are procedural and substantive reasons for this demand. Given the significance of the powers transferred to the EU and the impact of the EU on citizens’ lives, the domestic legal order, and eventually, state sovereignty, the democratic legitimacy of the integration process should be enhanced from a procedural perspective. So far, the only specific requirement to approve treaties transferring powers to the EU is an absolute majority in Congress. A broader parliamentary majority may well be required, as well as a popular referendum if a certain number of representatives demanded it, similar to the process for a constitutional amendment. In addition, a specific European integration clause might incorporate the substantive limits to the transfer of powers and specify the elements that comprise the ‘constitutional identity’ of the state. At the same time, this clause could incorporate the principles of interaction with the EU to reflect the changes brought by the membership of the EU and the EMU.

B.  Constitutional Amendment Prompted by EMU: The Balanced Budget Rule As outlined above, the Spanish Constitution has been amended twice since 1978. Both amendments were motivated by the process of EU integration. The first amendment took place in 1992, and it was necessary to enable the Spanish ratification of the Maastricht Treaty. This Treaty incorporated the notion of EU citizenship and granted the right to vote and be elected to EU citizens in the local elections of the country of residence. Article 13 SC was amended in order to provide for the right to be elected to non-nationals. The second amendment is directly related to the EMU. In September 2011, Article 135 SC was amended to incorporate the balanced budget rule in the Spanish constitutional system.29 27 Pérez Tremps, Las reformas de la Constitución, 91. 28 Juan José Solazabal Echavarría, ‘El Tratado Constitucional europeo y la reforma de la Constitución española’ (2005) 57 Revista del Ministerio de Trabajo y Asuntos Sociales, 33, 44–6; Enoch Albertí Rovira, ‘La cláusula europea en la Reforma de la Constitución española’ in Jose Álvarez Junco and Francisco Rubio Llorente (eds), El Informe del Consejo de Estado sobre la reforma constitucional: texto del informe y debates académicos (Madrid, Centro de Estudios Políticos y Constitucionales and Consejo de Estado, 2006), 457, 457–82; Ricardo Alonso García, ‘Reforma constitucional: la recepción en la Constitución del proceso de construcción europea’ in Jose Álvarez Junco and Francisco Rubio Llorente (eds), El Informe del Consejo de Estado sobre la reforma constitucional: texto del informe y debates académicos (Madrid, Centro de Estudios Políticos y Constitucionales and Consejo de Estado, 2006), 557, 557–561; Araceli Mangas Martín, ‘La reforma del artículo 93 de la Constitución española’, in Jose Álvarez Junco and Francisco Rubio Llorente (eds), El Informe del Consejo de Estado sobre la reforma constitucional: texto del informe y debates académicos (Madrid, Centro de Estudios Políticos y Constitucionales and Consejo de Estado, 2006) 533, 533–56; Pedro Cruz Villalón, ‘La cláusula general europea’ in Pedro Cruz Villalón (ed) Hacia la europeización de la Constitución española. La adaptación de la Constitución española al marco constitucional de la Unión Europea (Bilbao, Fundación BBVA, 2006), 51, 70–4; Pablo Pérez Tremps, Las reformas de la Constitución (2018), 90–4. 29 Regarding the constitutional amendment of Art 135, see among others, Roberto Blanco Baldés, ‘La reforma de 2011: de las musas al teatro’ (2011) 216 Claves de la razón práctica, 8; Manuel Medina Guerrero, ‘La reforma del artículo 135’ (2012) 29 Teoría y Realidad Constitucional, 131; Piedad García-Escudero, ‘La acelerada tramitación parlamentaria de la reforma del artículo 135 de la Constitución’ (2012) 29 Teoría y Realidad Constitucional, 165; Víctor Ferreres Comella, ‘Amending the National Constitutions to Save the Euro: Is This the Right Strategy?’ (2013) 48 Texas International Law Journal, 223.

262  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez This amendment took place even before the signature and ratification of the TSCG. According to Article 3(2) TSCG, there is an obligation to give effect to the balanced budget rule in national law ‘through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes’. The constitutional amendment took place at a highly distressing moment for the Spanish economy, which was struck by a major public debt crisis. It was prompted by the so-called Euro-Plus-Pact, a package of measures adopted by the European Council in March 2011 to respond to the crisis and preserve financial stability,30 as well as the French-German summit held on 16 August 2011,31 in which the Spanish government was required to take measures to enhance the trust of international markets. Substantively, Article 135 SC32 incorporates the principle of budgetary stability and states that neither the state nor the regional governments may incur a structural deficit that exceeds the margins established by the EU. Also, public debt must respect constraints established by the TFEU, and its payment given absolute priority. Furthermore, Article 135(5) SC foresees the approval of an organic law that shall (1) set the maximum structural deficit permitted for the state and regional governments in relation to the gross domestic product thereof, and (2) develop the principles provided for in this Article and the mechanisms for coordination between public administrations in matters of fiscal and financial policy. Procedurally, Article 135 SC was amended following the general procedure of Article 167 SC, without holding a referendum. Although a group of deputies and senators asked for a

30 European Council Conclusions, 20 April 2011, www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ ec/120296.pdf. 31 María Josefa Ridaura Martínez, ‘La reforma del artículo 135 de la Constitución española: ¿pueden los mercados quebrar el consenso constitucional?’ (2012) 29 Teoría y Realidad Constitucional, 237, 238; Luis Ignacio Gordillo Pérez, ‘A propósito de la reforma constitucional de 2011’ (2012) 25 El Cronista, 31, 32. 32 Art 135 of the Spanish Constitution reads as follows: 1. All public administration services shall adapt their actions to the principle of budgetary stability. 2. Neither the state nor the regional governments may incur a structural deficit that exceeds the margins established, as the case may be, by the EU for its Member States. A constitutional law shall set the maximum structural deficit permitted for the state and regional governments in relation to the gross domestic product thereof. Local authorities shall be required to present a balanced budget. 3. The state and the regional governments shall require legislative authorisation to issue public debt or secure credit. Loans to meet payment on the interest and capital of the public debt held by the public administration services shall always be deemed to be included in budget expenditure and their payment receive absolute priority. Such loans may not be subject to amendment or modification while they are in line with the conditions established by legislation on the issue thereof. The volume of public debt held by the public administration services as a whole in relation to the gross domestic product of the state may not exceed the reference value established in the Treaty on the Functioning of the European Union. 4. The limits on the structural deficit and the volume of public debt may only be exceeded in the event of natural disaster, economic recession or situations of extraordinary emergency beyond the control of the State and which seriously prejudice the financial situation or the economic or social sustainability of the State in the opinion of an absolute majority of the Members of the Lower House of Parliament. 5. A constitutional law shall develop the principles provided for in this Art, as well as the involvement in the respective procedures by the institutional bodies for coordination between the public administration services in matters of fiscal and financial policy. At any event, it shall govern: a) the distribution of the deficit and debt limits between the various public administration services, the exceptional cases when the same may be exceeded and the method and term to correct deviations that may arise in relation to one or another; b) the methodology and procedure for calculating the structural deficit; c) the responsibility of each public administration service in the event of failure to comply with budgetary stability targets. 6. Pursuant to their respective governing statutes and within limits referred to in this Art, the regional governments shall adopt the appropriate provisions to effectively apply the principle of stability in their regulations and budgetary decisions.

Spain  263 referendum, they did not reach the required minimum of one-tenth of the members of the respective chamber.33 The reform of Article 135 SC can be regarded as an ‘express constitutional amendment’ since it took place in less than two weeks from the end of the summer vacation in 2011.34 The constitutional amendment followed an urgent and special procedure, according to which the timelines were reduced and the proposal only discussed in the Plenary of Congress and Senate, without discussions in the respective commissions.35 As such, the amendment was not the outcome of a broad public debate, but rather an agreement behind closed doors between the President of the Government at the time, the socialist José Luis Rodríguez Zapatero, and the leader of the main opposition party, Mariano Rajoy, who won the following general elections in 2011.36 This amendment aimed at signalling the commitment to budget stability and the implementation of the necessary measures to fulfil the obligations regarding the limits to public debt and deficit.37 As such, this clause has had a direct impact upon two structural constitutional principles: the welfare state and political decentralisation. Regarding the welfare state, the constitutionalisation of the public debt and deficit limits constrains the state’s autonomy to develop social policies.38 The commitment to budget stability and the absolute priority given to the payment of public debt have resulted in severe cuts in public spending that have undermined basic social rights, such as education and health care.39 Moreover, Article 135 SC has impacted on the principle of territorial decentralisation.40 In Spain, the development of social policies, such as education, health care, housing, or social services corresponds to a great extent to the autonomous communities, which devote 70 per cent of the public spending to social services.41 Article 135 SC, and the organic law that develops it, have strengthened the mechanisms in the hands of the central government to monitor public spending and the respect of fiscal discipline by the autonomous communities (see Section III below). Ultimately, to some extent, Article 135 SC has also undermined the democratic principle as a consequence of two elements. The first is the constraints on the budgetary powers of the government and parliament, which are at the historical and conceptual roots of the democratic system.42 The second is the constraint on the political autonomy of the autonomous communities to develop their own economic and social policies.

33 Piedad García-Escudero Marquez, ‘La acelerada tramitación parlamentaria’, 172. 34 This was the time from the submission of the proposition to amend the Constitution on 26 August 2011 to approval by the Senate on 8 September 2011. 35 Piedad García-Escudero Marquez, ‘La acelerada tramitación parlamentaria’, 179. 36 Blanco Valdés, ‘La reforma de 2011’, 12–5; Ridaura Martínez, ‘La reforma del artículo 135 de la Constitución española’, 249–59; García-Escudero, ‘La acelerada tramitación parlamentaria, 165; Pablo Pérez Tremps, Las reformas de la Constitución (2018) 75-6. 37 Victor Ferreres Comella, ‘Amending the National Constitutions to Save the Euro’, 233. 38 Miguel Ángel Martínez Lago, ‘Crisis fiscal, estabilidad presupuestaria y reforma de la Constitución’ (2011) 24 El Cronista, 17, 17. 39 González Pascual, ‘Austerity Measures and Welfare Rights’, 116. 40 Manuel Medina Guerrero, ‘El Estado autonómico en tiempos de disciplina fiscal’ (2012) 98 Revista Española de Derecho Constitucional, 109, 114; Tomás De la Quadra Salcedo Janini, ‘La incidencia de la reforma del artículo 135 de la Constitución sobre el Estado autonómico’ (2017) 2016 Informe Comunidades Autónomas 77; Maribel González Pascual, ‘Constitución spañola y gobernanza económica europea; desnudez y crisis del Estado constitucional’ (2017) 109–II Revista Vasca de Administración Pública 21. 41 Enoch Albertí Rovira, ‘El impacto de la crisis financiera en el Estado autonómico español’ (2013) 98 Revista Española de Derecho Constitucional, 63, 68–9. 42 Pablo Pérez Tremps, Las reformas de la Constitución, 83; Marc Carrillo López, ‘La crisi i els drets socials en les polítiques públiques de la Generalitat’ (2018) 56 Revista Catalana de Dret Públic, 1, 4.

264  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez

C.  Judicial Review of Treaties Article 95 SC sets forth a mechanism for ex ante constitutional review of treaties (prior to ratification). This proceeding might be initiated by the government, the Congress, or the Senate. If the SCC declares that a treaty provision breaches the Constitution, then the treaty may only be ratified if the Constitution is amended accordingly. The goal of Article 95 SC is to avoid the ratification of unconstitutional treaties. This mechanism has been set in motion twice with regard to the EU. First, before the ratification of the Maastricht Treaty, the SCC was confronted with the issue of compatibility between the Maastricht Treaty and Article 13 SC, since this provision excluded non-nationals from the right to be elected. The SCC found that the Maastricht Treaty clashed with the Constitution, and consequently the Constitution was amended in 1992.43 Second, in 2004, the Treaty Establishing a Constitution for Europe was brought before the SCC regarding the clause that provided for the primacy of EU law (Article I–6) and the clauses on the scope of application and interpretation of the Charter rights (Articles II–111 and II–112). The SCC ruled that the Treaty was compatible with the Constitution, but it seized the occasion to indicate the existence of substantive limits to integration, as explained above.44 Later on, in the context of an individual complaint about the execution of a European arrest warrant, the SCC reiterated the substantive limits to integration and claimed the last word to decide on the potential clash between EU law and the Constitution.45 Nonetheless, the Court revised the prior constitutional interpretation of the right to a fair trial to avoid the conflict between the Constitution and the obligation under EU law to execute the warrant.46 So far, the SCC has not activated its counter-limits doctrine. Neither the ESM nor the TSCG were subject to ex ante review by the Constitutional Court. Nonetheless, the constitutional amendment of Article 135 SC was challenged before the Constitutional Court. Two deputies of a minority opposition group submitted an individual complaint (recurso de amparo) regarding the procedure to approve the constitutional amendment. They claimed that the procedure had breached their right to political participation47 since the parliamentary debate had been curtailed. The SCC declared that the complaint was inadmissible since there was no evidence of a violation of the right to political participation. Still, in the order of inadmissibility, the Court briefly tackled the arguments of the defendants.48 First, the defendants argued that, given the connection of the constitutional amendment proposal with the Preliminary Title and fundamental rights, the more stringent procedure of Article 168 SC should have been followed. The Court responded that the proposal was restricted to the content of Article 135 SC, and thus the general procedure of Article 167 SC was the right one.49 Second, the defendants claimed that the urgent procedure, the limitation of the debate to the Plenary, and the reduction of time for submitting amendments undermined the parliamentary debate and their right to political participation. The Court argued that the constitutional 43 ECLI:ES:TC:1992:1D. 44 ECLI:ES: TC: 2004:1D, para 2. 45 ECLI:ES:TC:2014:26. 46 Aida Torres Pérez, ‘Melloni in Three Acts: From Dialogue to Monologue’ (2014) 10 European Constitutional Law Review, 308, 319–323; Javier Díez-Hochleitner, ‘El derecho a la última palabra: ¿Tribunales constitucionales o Tribunal de Justicia de la Unión?’ (2013) 17 WP IDEIR 1. 47 Art 23(2) SC. 48 ECLI:ES:TC:2012:9A. 49 Ibid, at para 2.

Spain  265 amendment was not excluded from these special procedures.50 Finally, regarding the inadmissibility of an alternative proposal, the Court found that the proposal changed the object of the procedure and went beyond Article 135 SC.51 Two judges issued a dissenting opinion. They argued that, at least, the complaint should have been admitted and decided on its merits, given the relevance of the case. Indeed, and beyond the discussion about its constitutionality, the procedure for the amendment of Article 135 SC was flawed from the perspective of a broad public deliberation.

III.  Constitutional Obstacles to EMU Integration It is not easy to assess which constitutional obstacles to further EMU integration might exist. This is primarily because the SCC declared the challenge to the constitutional amendment of Article 135 SC to be inadmissible, and no EMU instrument has been challenged before Spanish courts. However, the constitutional obstacles to further EMU integration, if any, could be inferred from the decisions made by the SCC in the context of the euro crisis, particularly in the cases regarding the Budgetary and Financial Stability Organic Law (BFSOL) and the national rules implementing several austerity measures.

A.  The Budgetary and Financial Stability Law; the Balance between Central and Regional Governments The amendment of Article 135 SC was further developed in detail by the Budgetary and Financial Stability Organic Law. This law is the cornerstone of the Spanish legal response to the EMU requirements. In fact, the law defines the main principles such as budget stability (Article 3 BFSOL), financial sustainability (Article 4 BFSOL), responsibility (Article 8 BFSOL) and multiannual budget-planning (Article 5 BFSOL). The budget stability is defined as equilibrium or a zero structural deficit. Deviations of the Regional or Central Administration might be accepted in case of economic recession, extraordinary emergency or natural disaster, but local administration and the social security system must be balanced or accrue surplus (Article 11 BFSOL).52 Still, according to the Additional Disposition of the Amendment of Article 135 SC, the deficit target will not enter into force until 2020. Nevertheless, the BFSOL makes clear that, whenever an Excessive Deficit Procedure (EDP) is triggered for Spain, the deficit will have to be reduced in line with the duties arising from the EDP53 (First Transitory Provision BFSOL). The financial sustainability of the budget also includes commercial debt. The annual expenditure growth cannot exceed a medium-term reference of GDP growth. The reference medium-term rate of potential GDP growth shall be determined on the basis of the Commission’s methodology

50 Ibid, at paras 3–4. 51 Ibid, at para 5. 52 The Act explicitly states that economic recession is understood in the same way as EU law understands it. Furthermore, the deviation will be passed by an absolute majority of the Congreso de los Diputados and cannot jeopardise financial sustainability in the long term. Finally, the social security system may incur a structural deficit, but will have to be compensated by the reduction of the structural deficit of the central government. 53 The Commission initiated an excessive deficit procedure for Spain and Portugal in 2009, which is still open.

266  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez (Article 12 BFSOL).54 The multi-annual planning implies that a three-year budget has to be drafted in line with details on the planned deficit, public debt and control of expenditure growth targets. Those targets must be consistent with the recommendations and opinions given by EU institutions (Article 29 BFSOL). A full report regarding the economic situation and the feasibility of those targets will be sent to the Chambers for approval. If the targets are rejected by any of the Chambers, the central government has one month to send a new proposal (Article 15 BFSOL).55 The responsibility of each public administration implies a non-bail out rule. Under this rule, the central government will rescue neither the regional administration, nor the local one, and, in turn, the regions will not rescue the local administrations (Article 8(2) BFSOL). However, the BFSOL had to be amended only four months after its approval56 to foresee the financial support of regions and local councils and suspend the non-bail out clause in those cases (Fourth Transitory Provision BFSOL). Two additional funds were put in place to support most of the regions and several local councils, given their lack of liquidity.57 The BFSOL has also shaped a kind of internal stability pact58 empowering the central government to coordinate the regional budgets along with an intricate system of control and sanctions to enforce the reform. The central government is entitled to determine the deficit and public debt targets of each administration, to assess the fulfilment of those targets and, eventually, to sanction the local councils and regions that deviate from the targets. The sanctioned scheme follows the EU system and features a prevention and correction phase with the possibility of monetary sanctions. Such a scheme reinforces the position of the central government within the constitutional allocation of powers. Unsurprisingly, the BFSOL was challenged by the Canarias government before the SCC. Article 25(2) BFSOL was one of the provisions challenged. According to this provision, if a region deviates from the targets determined by the central government, national experts, appointed by the central government, might ask for further information and, eventually, request the region further specific mandatory measures to tackle the deviations. However, the SCC considered that, if a region does not reach the targets, the central government might recommend to the region the measures that should be taken, but those recommendations are not mandatory. In the SCC’s view, if the central government could impose those measures, it would control or even replace the region. Such a possibility would violate the political autonomy and the allocation of powers enshrined in the Constitution. Therefore, the recommendations of the experts are not mandatory regardless of the wording in the BFSOL provisions.59 Still, the SCC considers that the central government is not powerless because it can rely on Article 155 SC, the so-called ‘federal execution’, to ensure the deficit and debt targets.60 Thus, paradoxically, if the region does not follow the recommendation of the central government, the latter may intervene in the regional powers if the regional government ‘fails to fulfil the obligations 54 Such a requirement is more demanding than Art 5(1) of the Regulation (EU) No. 1173/2011 on the effective enforcement of budgetary surveillance in the eurozone, because in the Spanish case the non-compliance with the expenditure requirements might trigger the correction mechanism even though deficit targets and public debt limits were reached. 55 In fact, the Congreso de los Diputados voted against the targets proposed by Government on 20 July 2018. Later, on 20 December 2018, the targets were approved by the Congreso de los Diputados, but it was rejected by the Senado on 27 December 2018. Thus, the current government must achieve the targets proposed by the former government. 56 Organic Law 4/2012, amending the Budgetary and Financial Stability Organic Law passed on 28 September 2012. 57 During the period 2012–18, the regions have asked the central government for up to 233.852,97 billion euros through the Additional Funds (www.hacienda.gob.es/es-ES/CDI/Paginas/EstabilidadPresupuestaria/20140410_LIQUIDEZ.aspx.). 58 Violeta Ruiz Almendral, ‘The Spanish Legal Framework for Curbing the Public Debt and the Deficit’ (2013) 9 European Constitutional Law Review, 190. 59 ECLI:ES:TC:2014:215. 60 ECLI:ES:TC:2014:215.

Spain  267 imposed upon it by the Constitution or other laws, or acts in a way seriously prejudicing the general interests of Spain’ (Article 155 SC). Thus, even though this is the only case in which the SCC has put a specific limit to the legal instruments stemming from the EMU,61 it is highlighted that the need to fulfil the deficit and debt targets is considered a constitutional duty that entitles the central government even to suspend regional powers if the general interest is at stake. Hitherto, Article 155 SC has only been applied after the declaration of independence made by the former president of Catalonia on 21 September 2017. It seems quite unlikely that the Spanish government will rely on it62 if a region deviates from the deficit target. In fact, the central government has monitored the regional budgets relying on the two additional support funds already mentioned, given the steep requirements to access the funding. In the context of these funds, first, regions must launch a planned adjustment path aiming at reaching the deficit and public debt targets. Second, regions must accept extraordinary adjustment measures if needed. Last but not least, if a region does not fulfil the funds’ conditions, the central government could apply the sanction system foreseen in the BFSOL.63 These funds are meant to be transitory and voluntary since regions might decide whether they want to rely on them or their resources.64 Nonetheless, those regions in need of financial assistance have not refused access to the extraordinary funds, regardless of the actual relationship between the central government and the region.65 The Canarias government also challenged Article 11(6) BFSOL. This provision determines the structural deficit administrations that can be incurred relying on the methodology followed by the Commission. According to the Canarias government, however, this article is in contradiction with Article 135(5) SC, according to which institutional bodies for coordination between the public administration services in matters of fiscal and financial policy will be involved in determining the methodology and procedure for calculating the structural deficit. Thus, in the Canarias government’s view, Article 135(5) SC has foreseen that regions will participate in the determination of the actual structural deficit since they are parties of the Council on Fiscal and Financial Policies.66 However, the SCC declared the provision constitutional on the basis of Spain’s EU membership in that the regions must comply with EU rules. Furthermore, it emphasised the need to coordinate economic policies within the EU based on the principle of loyal cooperation between the EU and the Member States. According to the SCC, this provision foresees that the EU institutions are 61 Actually, the SCC does not consider Art 20 BFSOL unconstitutional. According to it, the central government may pay directly to the providers in cases of late payment by even retaining regional resources ECLI:ES:TC:2016:101. 62 It is indeed quite an extreme measure. In fact, the application of Art 155 SC involved the removal from office of the president of Catalonia and the dissolution of the regional parliament. In this regard, the SCC considered that Art 155 SC could be used only as a last resort in case of blatant and repeated non-compliance ECLI:ES:TC:2014:215. 63 First Additional Provision BFSOL. 64 Currently, there are two main funds, the Financial Facility Fund and Regional Liquidity Fund. Regions fulfilling the stability criteria can access the first one and the rest only the second one. The Regional Liquidity Fund empowers the central government to request an adjustment plant to access to the fund and arrange financial transactions. See Financial Sustainability Regions and municipalities Royal Decree Law 17/2014. 65 In fact, the central government approved a tight control over the Catalan budget on 20 November 2015 relying on the Regional Liquidity Fund. Such control was considered to be in accordance with the legal order since several measures adopted by the Catalan government in the frame of the so-called pro-independence process were in clear contradiction with the Budgetary and Financial Stability Organic Law and Catalonia was relying on the Regional Liquidity Fund. See ECLI:ES:TS:2018:3421. 66 The Council on Fiscal and Financial Policies is a Sectorial Conference created by the Regional Financing System Law, passed on 22 September 1980. Its members are the ministers for finances of each and every region and of the central government, and its main task is to coordinate the fiscal and finance policy by reaching agreements in fields such as public debt, budgetary management or investment.

268  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez entitled to determine the methodology and procedure to assess the structural deficit. Thus, given that the Spanish parliament may confer constitutional powers to EU institutions (Article 93 SC) and that both the Maastricht and the Lisbon Treaty have entitled the EU to assess the deficit of the Member States, it is constitutionally necessary to comply with the EU targets regarding the structural deficit and the EU provisions which determine the way to assess such deficit.67 The reasoning of the SCC relied on Article 2 of Protocol nº 12 of the TFEU on the EDP, according to which ‘deficit’ means net borrowing as defined in the European System of Integrated Economic Accounts.68 Still, as the dissenting opinion pointed out, Protocol nº 12 does not refer to the structural deficit but to the governmental deficit. In fact, the norm approved by the Spanish government69 regarding the definition of the structural deficit was based on a report drafted by the European Commission.70 In a nutshell, the SCC endorsed the strength of EU law related to the EMU and its impact on the Spanish constitutional system in a case concerning a nonmandatory EU rule. Still, it seems wise to follow the Commission’s methodology to assess the deficit. Furthermore, such a decision could have been considered constitutional on the basis of the economic competence of the central government. Nonetheless, the SCC’s interpretation is extremely deferent to the EU legal system. This is because complying with EU soft law became a constitutional duty anchored in Articles 93 and 135 SC without much argumentation. This trend has been even clearer when the SCC has dealt with recommendations addressed to Spain in the frame of Financial Assistance. In this regard, several regions approved new laws on the right to housing, which foresaw the temporary suspension of evictions. Such laws were challenged before the SCC, and their application was suspended. Surprisingly, the legal basis alleged for suspending these regional laws was the fifth review of the Financial Assistance Program.71 Later on, the SCC declared the Decree Law to be unconstitutional concerning the right to housing adopted by the government of Andalusia.72 The SCC admitted that the regional Decree Law tried to protect the right to housing. Nevertheless, the SCC pointed out that a key element of Spanish economic policy is to stabilise and reorganise the banking sector. In line with this, the SCC considered that the Spanish parliament has already ascertained the vulnerable groups’ protection which did not endanger the mortgage scheme.73 Furthermore, the mortgage scheme is crucial for the financial market. Consequently, regions cannot approve further measures that might change the balance already achieved between social protection and economic policy.74 This reasoning was clearly based on the letter sent by the Commission to the Spanish government in June 2013. As stated in this letter, the regional measure goes ‘further than a balanced approach that should reconcile the necessary protection of the most vulnerable families with the

67 ECLI:ES:TC:2014:215. 68 ECLI:ES:TC:2014:215. 69 Order ECC/493/2014, 27 March 2014, of the minister for economic affairs. 70 The government relied on ‘The cyclically adjusted budget balance used in the EU fiscal framework: an update’, published by the EU (Economic Papers 478 March 2013), which explicitly states that it does not reflect necessarily the views of the European Commission. 71 According to this report the ‘different legal frameworks on housing across the national and regional levels and legal uncertainty about the rules to be applied could weigh on the value of the mortgage collateral and the stability of financial markets’. In addition, ‘regional laws aimed at alleviating the social problems related to foreclosures and evictions … create additional legal uncertainty. … In the worst case, they may even endanger financial stability’. 72 ECLI:ES:TC:2015:93. 73 However, the law had limited effect in practice. In this regard, it has been estimated that no more than 0.77% of total households in Spain could be eligible. Besides, it has also been estimated that only 7.6% of the households with all members unemployed would be considered a vulnerable group. See Fernando Gómez Pomar and Karolina Lyczkowska, ‘Spanish Courts’, 30. 74 In a similar vein see: ECLI:ES:TC:2018:16; ECLI:ES:TC:2018:32; ECLI:ES:TC:2018:43; ECLI:ES:TC:2018:80.

Spain  269 need to preserve financial stability’.75 The resemblance with the SCC’s reasoning is astonishing. Thus, the SCC’s interpretation defers strongly to the economic and financial obligations stemming from the euro crisis law,76 since the need to comply with it becomes a constitutional duty anchored in Articles 93 and 135 SC. Such an interpretation bears witness to the ultimate strength of the EMU. However, it remains to be seen whether this understanding of the legal effect of the soft law is a consequence of the economic crisis or an enduring phenomenon.

B.  Austerity Measures As already stated, the Commission initiated an EDP against Spain in 2009. This decision had its first impacts in 2010. In particular, the childbirth allowance was abrogated, and the assistance to persons with dependency due to disability, age or illness was reduced. The economic crisis deepened, and in 2011, the public deficit reached 8,5 per cent GDP. On 14 February 2012, the Commission, on the basis of Regulation (EU) 1176/2011, adopted the Alert Mechanism Report, in which it identified Spain as one of the EU Member States for which an in-depth review would be carried out. The review stated that Spain was affected by macroeconomic imbalances. The Spanish economy deteriorated even more due to the banking crisis. On 7 May 2012, the Spanish government decided to nationalise Bankia, the fourth biggest Spanish bank. Bankia’s rescue, due to its low capital, amounted to 2,5 per cent GDP. Therefore, on 9 June 2012, Spain requested financial assistance amounting to 100 billion euro. This aid was granted on the condition of fulfilling the EDP obligations and recommendations to address the macroeconomic imbalances.77 In this framework, Spanish authorities adopted several measures regarding mostly public employees’ working conditions, welfare and labour rights and tax law that had been unsuccessfully challenged before the SCC. It must be highlighted that the principles recognised in chapter three of the Spanish Constitution may only be invoked before ordinary courts in accordance with the legal provisions for implementing them. Most of the social rights are also enshrined in chapter three. Still, according to Article 1 SC, Spain is a social state, and such provision could support an interpretation which would strengthen social rights’ protection. However, the SCC has been quite reluctant to adjudicate on social rights. Only the introduction of court fees was considered unconstitutional since it could impair the access to a fair trial for those with less economic resources.78 Yet, no austerity measures have been declared unconstitutional on the basis of social rights. Thus, the Spanish Constitution guarantees the social dimension of civil rights but not social rights as such. Consequently, it is quite unlikely that the social state might become an obstacle to the EMU without a previous change of the constitutional case law. Still, the Spanish social state is intertwined with the regional state, given that regions are the ones empowered to rule on social policies, whereas the central government rules on general economic matters and the minimum equality among citizens throughout the territory. Therefore, many austerity measures were challenged in the frame of a competence conflict between the central government and a region. In this regard, since the economic policy is largely being equated to a balanced budget and austerity measures, the clash between the central government competence on economic matters 75 See www.elpais.com/ccaa/2013/06/24/andalucia/1372082975_621680.html. 76 The term euro crisis law is understood as encapsulating both the law governing the sovereign debt loans and the EMU. See Claire Kilpatrick, ‘Constitutions, social rights and sovereign debt in Europe: a challenging new area of constitutional inquiry’ (2015) WP EUI 2015/34 16. 77 Memorandum of Understanding on Financial-Sector Conditionality of 9 July 2012. 78 ECLI:ES:TC:2016:140.

270  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez and the regions’ competence on social policies can involve the central government challenging a regional policy that increases public spending.79 In a similar vein, the central government can plead its competence to maintain a general level of equality among citizens versus a regional law that decreases social policy protection.80 This development is unsurprising. On the one hand, the balance between equality and the regional principle had been struck simply by asserting that once the central government had provided a right, regions were entitled to improve it. This assertion is useless when regions need to decrease public spending. It was indeed a too simple answer to an extremely complicated question.81 On the other hand, in times of crisis, the competence over economic matters tends to become a clear creeping-competence displacing any other competence. In short, the centralisation of power is quite usual when facing an economic crisis. Still, two questions arise. First, is this trend reinforced by the EMU? If it is, it could imply that the centralisation is not transitory. Second, if it is not transitory, is there any constitutional boundary to this evolution? The need to tackle the economic crisis has been a decisive factor in the SCC’s decisions. The SCC has recently changed its understanding of the right to housing, upholding the constitutionality of a regional law aiming to promote the right to housing by restraining private property.82 This judgment does not follow the former ones and could be a consequence of the improvement of the economic situation. Nevertheless, this more lenient approach of the Court regarding the right to housing affects the scope of the right to property but not the public finances. In this framework, the obligation to comply with the EMU’s requirements and the constitutional amendment of Article 135 SC still plays a key role in the current case law. Economic policy powers have been explicitly widened by anchoring them in Article 135 SC.83 This view is supported by the fact that budget stability is currently essential to determine the scope of regional powers.84

C.  Constitutional Obstacles to EMU Reform Proposals? The Saint Nicholas Proposals The Spanish constitutional system has never been particularly concerned with protecting the Constitution against excessive Europeanisation. There is no European clause limiting the EU process in the Spanish Constitution, and the two constitutional amendments since 1978 have been EU integration-related.85 Still, regardless of the actual openness of the Spanish legal system towards EU law, the SCC has not developed comprehensive case law regarding the interaction between national and European legal systems. In this regard, when dealing with the constitutional limits to EU integration, the SCC argued that there are implicit substantive limits to the transfer of powers to an international organisation. These limits are state sovereignty, the basic constitutional structures, and the system 79 See, among others, the judgment on the Catalan budget regarding civil servants ECLI:ES:TC:2015:81. 80 See, among others, the judgments on the extra euro charge per prescription approved by Madrid and Catalonia regions ECLI:ES:TC:2014:71 and ECLI:ES:TC:2014:85. 81 Maribel González Pascual, ‘Methods of interpreting competence norms: judicial allocation of powers in a comparative perspective’ (2013) XIV 8 German Law Journal, 1521. 82 Among others see ECLI:ES:TC:2018:97. 83 Joaquim Tornos Mas, ‘Derechos sociales, Comunidades Autónomas y crisis económica’ (2017) 2016 Informe Comunidades Autónomas, 47. 84 ECLI:ES:TC:2018:78. 85 Rafael Bustos Gisbert, ‘National Constitutional Identity in European Constitutionalism: revisiting the tale of the emperor’s new clothes in Spain?’ in Alejandro Saiz Arnaiz and Carina Alcoberro Llivina (eds) National Constitutional Identity and European Integration (Cambridge, Antwerp, Portland, Intersentia, 2013), 75, 90.

Spain  271 of fundamental values and principles enshrined in the Constitution, fundamental rights in particular.86 Beyond these general statements, the SCC shied away from dealing with an ultra vires or contra-limiti doctrine by simply stating that the relationship between EU law and constitutional law cannot be resolved on the basis of a hierarchy since the former has the primacy over national law whereas latter has the supremacy. In line with this approach, the SCC tends to avoid any debate regarding EU law by stating that the EU law is not a yardstick for constitutional review.87 Therefore, it is highly likely that the Saint Nicholas package will not be contested by the SCC, given the traditional approach of the SCC towards EU law. Looking at Spanish case law, almost no constitutional obstacles emerge to the EMU reform proposals. First, the SCC has never dealt either with power limitations of an EU institution or organ or with the impact of EU law on the powers of key Spanish institutions.88 For the SCC, ‘European integration has been a non-constitutional’89 process and, as such, the legal basis of EU rules or the functioning of the EU can hardly be challenged before Spanish courts. Therefore, if the establishment of the European Monetary Fund (EMF)90 is eventually challenged before the SCC, relying either on the legal basis chosen by the Commission to approve it or on the EMF voting rules or powers, the SCC will declare the challenge unfounded. In a similar vein, it is difficult to envisage any constitutional obstacle to the creation of a European Minister of Economy and Finance91 based on a constitutional limit to the powers of the EU. Second, regarding the impact of the EMU reform proposals upon fundamental rights, socioeconomic rights have been hollowed out during the euro crisis, and the Constitution has played no role. In cases related to social rights such as the right to health, the SCC has only considered the unconstitutional measures in breaching EU procurement law.92 The SCC has also been reluctant to endorse a social interpretation of economic rights such as consumers’ protection or freedom to conduct a business. This shows that the SCC has an even more restrictive understanding of the social dimension of economic rights than the one supported by the CJEU.93 In this framework, it is difficult to envisage that any reform aiming to constrain budgetary sovereignty94 will be successfully challenged before the SCC on the basis of social rights. It is to be expected that if a European Unemployment Reinsurance Scheme was created, it would be considered compatible with both Articles 4195 and 35 SC.96

86 ECLI:ES:TC:2004:1D. 87 See, among many others, ECLI:ES:TC:2017:13. 88 In this regard, it was questioned whether the position of both Chambers of the Spanish Parliament made by Art 6 Protocol nº 2 on the application of the principles of subsidiarity and proportionality is in accordance with the Spanish Constitution, given that the constitution grants a clear primacy to the Congreso de los Diputados over the Senado. Still, the SCC did not even consider this matter when it dealt with the Treaty establishing a constitution for Europe. See Alejandro Saiz Arnaiz, ‘De primacía, supremacía y derechos fundamentals en la Europa integrada: la Declaración del Tribunal Constitucional de 13 de diciembre de 2004 y el Tratado por el que se establece una Constitución para Europa’ in A López Castillo, A Saiz Arnaiz, V Ferreres Comella (eds) Constitución Española y Constitución Europea (Madrid, Centro de Estudios Políticos y Constitucionales, 2005) 6. 89 Bustos Gisbert ‘National Constitutional Identity’, 90. 90 European Commission, Annex to the proposal COM (2017) 827 for a Council Regulation on the establishment of the European Monetary Fund. 91 European Commission, COM (2017) 823, Communication from European Minister of Economy and Finance. 92 ECLI:ES:TC: 2015: 84. 93 Maribel González Pascual, ‘The Charter in times of crisis: the empowerment of economic rights’ in S de Vries (eds.) EU citizens’ economic rights in action (Edward Elgar, Cheltenham, 2018), 143, 147–50. 94 Such as the creation of the EMF or the European Minister of Economic and Finance. 95 Art 41 SC ‘The public authorities shall maintain a public Social Security system for all citizens which will guarantee adequate social assistance and benefits in situations of hardship, especially in cases of unemployment’. 96 Art 35 SC ‘All Spaniards have the duty to work and the right to employment, to free choice of profession or trade, to advancement through their work, and to sufficient remuneration for the satisfaction of their needs and those of their

272  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez In this regard, the SCC determined that the social security system, enshrined in Article 41 SC, is an institutional guarantee, whose core cannot be questioned. Still, the SCC has never specified the scope of such core. Furthermore, the legislator has ample scope to manoeuvre to shape the actual content of the social security system, which might depend on economic and social circumstances.97 In this framework, the indexation of pensions passed in November 2012 was held constitutional, although it affected the total amount to be received that year.98 In the SCC’s view, neither the right to an adequate pension nor the legitimate expectations principle were violated because the legislator is entitled to revise the amount of pensions anew in line with the changing economic circumstances.99 Similarly, the SCC considered that the legislator is entitled to decide how to foster employment, the government being better suited to assess the efficiency of the measure than the Courts.100 Hence, neither the social security system nor the labour market would impede the implementation of the Saint Nicholas proposals without a turnaround of the Spanish case law. Third, as already explained, Article 135 SC has increased the powers of the central government on economic policies immensely and has also strengthened the need to comply with EU duties in the frame of the budgetary stability and the need to coordinate the economic policy within the EMU.101 Hence, the Spanish constitutional system has embraced the need to align the domestic budget and economic policy with the rules stemming from the EMU as a consequence of the EU membership. The constitutional limits to these duties are so few and so low,102 that the enhancement of the financial capacity of the Single Resolution Fund cannot be successfully challenged on the basis of the Spanish Constitution. In a similar vein, any EMU mechanism implying a shared risk seems to be compatible with the Spanish Constitution.103 Furthermore, Article 135(5) SC has explicitly enshrined the liability of each public administration in the event of a breach of budgetary stability targets, which lead to the establishment of a kind of internal stability pact. The BFSOL already foresees the need to set up a national framework of binding fiscal rules, including a medium-term budgetary objective and fiscal planning and correction mechanism.104 Furthermore, the Independent Authority for Fiscal Responsibility assesses the compliance with the fiscal framework rules,105 the plausibility of the economic and financial planning to overcome any unbalance in the public administration’s budget,106 and the need to activate the sanction and correction mechanisms foreseen in the BFSOL.107 Thus, the

families; moreover, under no circumstances may they be discriminated against on account of their gender. The law shall establish a Workers’ Statute’. 97 ECLI:ES:TC:1994:37. 98 According to the Social Security Act, pensions will be revised by the end of the year in line with inflation to the extent that if pensioners have lost purchase power during the year, they have to be compensated. 99 ECLI:ES:TC:2015:49. 100 The SCC upheld the constitutionality of the one-year probation because it was driven to foster employment and there is no right to work if there is no employment. Hence, the government is quite free to shape the labour market. ECLI:ES:TC:119:2014. 101 ECLI:ES:TC:2014:215. 102 The SCC has only declared incompatible with the Constitution the replacement of the Regions by the central government but in the cases in which Art 155 SC is applicable ECLI:ES:TC:2014:215. See Section III. A. 103 Therefore, the reforms of the Banking Union contained in the Banking Union Insurance Mechanisms will be applied smoothly in Spain if they are eventually approved. European Commission, Proposal COM (2017) 827 European Monetary Fund. A. Similar reasoning can be applied to the risk sharing component of the European Investment Protection Scheme, European Commission, COM (2018) 387, Proposal for a Regulation of a European Investment Stabilisation Function. 104 See section III.A. 105 Art 14 BFSOL. 106 Art 19 Organic law 6/2013 of creation of the Independent Authority for Fiscal Responsibility. 107 Art 21 Organic law 6/2013 of creation of the Independent Authority for Fiscal Responsibility.

Spain  273 Spanish legal system already provides most of the rules contained in the proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term, budgetary orientation in the Member States.108 Fourth, given that the parliamentary and the regional involvement in EU matters is not governed by the Constitution but by ordinary laws, they can be easily amended by the Spanish parliament. In line with this, the SCC has never considered the participation of both the central and regional parliaments and the regional governments in EU matters guaranteed by the Spanish Constitution.109 Thus, there is no constitutional duty to reinforce either the parliamentary or the regional control over EU decisions impacting national policies, even if they impact the national budget. It must be noted that the Spanish parliament did not participate when Spain requested financial assistance for its banking system. The Spanish parliament was indeed simply informed by the government when the Memorandum of Understanding and Financial Assistance Facility Agreement was concluded, regardless of its actual implications for Spain.110 Furthermore, the Spanish parliament does not participate in the ESM decision-making.111 In this framework, even though it could be argued that the EMF might impact the budgetary powers of the parliaments, or that the instruments to provide support in case of asymmetric shock112 should imply a tight control of the national parliaments over the mechanism eventually chosen,113 the Spanish Constitution does not impose more suitable participation of the parliament in EMU matters. Finally, the SCC has not criticised the conditionality principle or the stick-and-carrot approach that characterises the EMU and, if anything, it has supported it.114 In fact, the need to fulfil very strict requirements to be granted financial support has not been questioned by Spanish Courts, as shown by the case law regarding the additional regional funds. The approval of a tighter control over the Catalan Budget was declared to conform with the Spanish legal system given that the Catalan government voluntarily asked for financial assistance from the central government and such assistance was conditioned, according to the BFSOL.115

108 Art 3 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the MOT orientation in the Member State. 109 In fact, the SCC has explicitly stated that the provisions regarding the participation of regions in the EU contained in the Statutes of Autonomy are constitutional because they are not mandatory. ECLI:ES:TC:2010:31. 110 See section IV.B.3. 111 In fact, the Spanish government asked the Lower Chamber for an extraordinary session to deal with the Third Economic Adjustment Program for Greece since Spain put 10.8 billion euro in it. Still, the government clearly underlined that the approval of parliament was not required by the Spanish legal order. Letter from the government asking for a plenary session regarding the Third Economic Adjustment Programme for Greece. Official Diary of the Congress, 24 August 2015. 112 European Commission, COM(2017)822, Communication from the Commission to the European Parliament, the European Council, the Council and the European Central Bank. New budgetary instruments for a stable euro area within the Union Framework. 113 This could be the case, for instance, if the EU approves either an investment protection scheme that implied the share of important risks for the Member States, a rainy-day fund or EU fiscal capacity allowing for fiscal transfers across the eurozone. In these scenarios, it could be argued that the Spanish parliament should participate more actively and, given the meltdown of the Spanish Two-party system, it is to be expected that there will be a lively political debate on the matter. Nevertheless, the legal order does not require more involvement from the Spanish parliament. Therefore, approval of any mechanism proposed to react in case of asymmetric shocks in the eurozone might encounter political obstacles but not legal ones. 114 As already stated, the central government challenged several regional laws on the right to housing on the basis of the fifth review of the Financial Assistance Programme for the Recapitalisation of Financial Institutions in Spain. The SCC considered that, given that the so-called Troika is composed of independent and highly specialised institutions, the president of the government could rely on their reports for, first, the suspension and later on the annulment of any law. See ECLI:ES:TC:2014:69A and ECLI:ES:TC:2014:115A. 115 ECLI:TS:2014:215 See Section III.A.

274  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez The Court did not question whether the fund was voluntary, given the lack of resources of the regional government at that moment, or the compatibility of the fund’s stringent requirements with the regional autonomy enshrined in the Spanish Constitution. Such reasoning can be easily applied to an EU regulation that requires the Member States to undertake specific measures to access further financial support. Thus, the approach taken by the Proposal for Regulation amending Regulation (EU) No 1303/2013 laying down provisions on the European Funds cannot be easily challenged before the Spanish courts. All in all, the yearly and effective participation of the parliament in the Budgetary Law and the determination of the targets related to the budget stability was considered essential to the balance of powers.116 Thus, the constraints in the budgetary power of the parliament could be questioned before the SCC. In this regard, it should be asked whether the obligation to determine fiscal planning for the legislature’s term that had to be respected by the annual budgets is constitutional,117 even though the SCC considered it essential that the parliament passes the Budget Law every year. Fiscal planning cannot be easily equated with the annual budget since the parliament would still retain certain powers to decide on the budget. Still, the link between the fiscal planning and the term of a legislature could be too demanding for a parliamentarian democracy. This conclusion is based on the traditional position of the SCC towards EU law. A position that the EMU has changed since EU law is now stronger than before in the Spanish constitutional system. The duties deriving from the EMU are linked to Article 135 SC and impact main constitutional principles, such as the social state and regionalism. The SCC has proven to be particularly deferent towards this trend. Therefore, we might assume that the Saint Nicholas package will be smoothly implemented in Spain if it is eventually approved. Still, the approach of the SCC and the central government, towards EMU requirements took place in the frame of a deep economic crisis, which probably had a significant effect on the decisions of Spanish institutions. Once the crisis is over, the Spanish institutions could be more belligerent with regard to the EMU proposals. The euro crisis has deeply changed the Spanish two-party-system, and new political parties have become key political players, some of them having a critical stance towards the EU. This new political landscape could eventually affect the position of the Spanish constitutional system regarding the EMU, and of the Spanish parliament in particular, as detailed below.

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law A.  General Context i.  The Spanish Parliament in EU Affairs As indicated above (Section II.A.), the Spanish Constitution does not contain any specific reference to Spain’s EU membership. Thus, contrary to the situations observed in France or Germany, and similarly to the one existing in Italy, the Spanish parliament (Cortes generales) does not benefit 116 ECLI:ES:TC:2018:44. 117 Art 3(1)(b) Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the MTO orientation in the Member State.

Spain  275 from any constitutional protection of its EU prerogatives. Thus, those prerogatives are anchored in secondary legislation, through which the Joint Committee for the EU is developed.118 Though the Spanish parliament is bicameral, the parliamentary committee specialised in EU affairs – the Joint Committee on EU Affairs (Comisión Mixta para la Unión Europea) – is common to both chambers. The Spanish parliament is generally considered a weak parliament.119 Its level of activity in EU affairs has generally remained minimal.120 Its powers vis-à-vis the Spanish government in EU matters are also very limited, mirroring the Spanish parliament’s general weakness vis-à-vis the Spanish government.121 This consequently means that the Spanish parliament is barely involved in the transposition and implementation of EU norms,122 even if the transposition normally happens by means of the approval of laws, which follow the ordinary legislative procedure.123 The possibility of the Spanish parliament influencing the Spanish government in EU affairs has been significantly reinforced since the entry into force of the Lisbon Treaty, and in particular, since the adoption of Law 38/2010 in December 2010.124 Nevertheless, those powers remain intrinsically soft. They are limited to oral and written questions, hearings, resolutions, reports, and the creation of specialised committees.125 The Joint Committee can also summon a debate on a specific EU legislative proposal. It may additionally ask the government to report on EU negotiations and their outcome once the Council has approved a legislative proposal.126 Further to this, the Joint Committee is entitled to ask the government about the main lines that inspire its EU policy and the decisions made in the Council.127 Since 2010, ex ante scrutiny of Council meetings is also possible since it may now determine which members of the government or other high-ranked civil servants should appear before it to debate on the position the government intends to defend concerning the items placed on the agenda.128 This does not, however, provide for the organisation of systematic hearings prior to each Council meeting. Instead, their organisation depends on the Joint Committee’s willingness and capacity.129 Control of European Council meetings is also guaranteed, both ex ante and ex post.

118 Law 8/1994 as revised post-Lisbon by Laws 24/2009 and 38/2010. 119 According to the OPAL institutional strength score, the Congress scores 0.4 while the Senate scores 0.39. As an element of comparison, the most active parliament, the Finnish Eduskunda, scored 0.84 and the EU-27 average is just below 0.5. See Katrin Auel, Olivier Rozenberg and Angela Tacea, ‘Fighting back? And, if so, how? Measuring parliamentary strength and activity in EU affairs’ in Claudia Hefftler, Christine Neuhold, Olivier Rozenberg and Julie Smith (eds), The Palgrave Handbook of national parliaments and the European Union (Basingstoke, Palgrave Macmillan, 2015), 60, 79–80. Additionally, during the crisis, the government adopted numerous executive norms, i.e. Decree laws, which contributed to weaken Parliament even further. 120 According to the OPAL EU affairs activity score, the Congress scores 0.23 and the Senate 0.22. The most active parliament, the Finnish Eduskunda, scored 0.6 and the EU-27 average was slightly superior to 0.2. Ibid. 121 Mario Kölling and Ignacio Molina, ‘The Spanish national parliament and the European Union: Slow adaptation to new responsibilities in times of crisis’, in Claudia Hefftler, Christine Neuhold, Olivier Rozenberg and Julie Smith (eds), The Palgrave Handbook of National Parliaments and the European Union (Basingstoke, Palgrave Macmillan, 2015), 348–9. 122 Ibid. 123 European Parliament, Comparative study on the transposition of EC law in the Member States (2007) 42. 124 Law 38/2010 which modifies Law 8/1994 on the Joint Committee for the EU to reinforce the said Joint Committee. 125 A specialised sub-committee to the Joint Committee, for instance, was recently created to examine the consequences of Brexit. See: www.congreso.es/portal/page/portal/Congreso/Congreso/Organos/SubPon?_piref73_1339276_73_13392 69_1339269.next_page=/wc/detalleInformComisiones&subComi=S&idOrgano=318101&idLegislatura=12. 126 Art 3(c), Statute 8/1994 (consolidated version). 127 Art 3, Statute 8/1994 (consolidated version). 128 Art 8, Statute 8/1994 (consolidated version). 129 Sonia Piedrafita, ‘The Spanish parliament and EU affairs in the post Lisbon Treaty era: all change?’ (2014) 20-4 The Journal of Legislative Studies, 451, 463.

276  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez These powers, which predate the Lisbon Treaty, are regularly used both ex ante and ex post.130 Some improvements were, nevertheless, still required regarding the Council and European Council accountability mechanisms. With regard to the former, some have observed that [w]hile the number of special meetings to question the government about its actions in the Council or about specific EU policies has increased, there is no evidence that this has improved the quality of the control functions of the EAC [European Affairs Committee, i.e. Joint Committee].131

It has indeed been noted that it is only seldom that a specific EU proposal is discussed.132 Furthermore, while ex ante control takes place before the Joint Committee, hence, involving both chambers, ex post control only involves the Congress. Furthermore, its EU activities have long been concentrated in the Joint Committee on EU affairs. Contrary to what could be observed in other EU Member States’ parliaments, sectoral committees in Spain did not have to deal with EU matters. For instance, almost all the new powers attributed to national parliaments by the Lisbon Treaty were given to the sole Joint Committee.133 It is also interesting to note that the political changes observable in Spain over the past years have indeed led the parliament to become more actively involved in EU affairs. Brexit, in particular, has been one of the most discussed topics when representatives of the Spanish government appeared before parliament outside of their reporting duties.134 This change towards a more active parliament is induced, among other things, by the end of large parliamentary majorities, which also implied the end of the government’s ability to easily have its proposals adopted in Parliament. Additionally, after the 2015 and 2016 elections, the pre-existing pro-European consensus was weakened.135 As an example of parliament’s active involvement, we can note that there were nine appearances of government representatives at the initiative of parliamentarians between 2011 and 2018,136 and that the Joint Committee met on 30 occasions during the same period.137 All this notwithstanding, parliament’s information on European Council developments has diminished since 2016. The government reported on most European Council meetings, even if during the XI and the XII legislatures (2016; 2016–19 respectively) these reporting duties were more partially fulfilled than they had been before. On only a few occasions did the government report both ex ante and ex post.138 However, this change was at least partially induced by the unstable political situation, whereby in 2016 during a very short legislature (January–July 2016) the previous government was maintained as a caretaker government since no stable government could be formed.

ii.  The Spanish Government in EU Affairs As has become clear from the analysis of the role of the Spanish parliament in EU affairs, the Spanish government is clearly predominant in Spain’s participation in the EU, even today. 130 Ariadna Salazar Quiñonez, La participación de los parlamentos nacionales en la Unión Europea (Madrid, Congreso de los Diputados, 2015), 160 ff. 131 Mario Kölling and Rafael Molina, ‘The Spanish national parliament’, 353. 132 Salazar Quiñonez, La participación de los parlamentos nacionales, 151–52. 133 Only the right of veto when passerelle clauses are used has been attributed to both Chambers. Diane Fromage, Les Parlements dans l’Union Européenne après le Traité de Lisbonne. La Participation des Parlements allemands, britanniques, espagnols, français et italiens (Paris, L’Harmattan, 2015) 163. 134 Antonio Bar Cendón, ‘The Spanish Parliament and Brexit’ in Thomas Christiansen and Diane Fromage (eds) Brexit and democracy. The role of Parliaments in the UK and the European Union (Basingstoke, Palgrave Macmillan, 2019), 207, 221ff. 135 Ibid, at 208. Ibid. 136 Ibid, at 225. 137 Ibid. 138 Ibid, at 215.

Spain  277 The government is obliged to provide parliament with a ‘brief report’ on the ‘substantial content’ of the ‘legislative proposals that have an impact on Spain’.139 It also appears before the Joint Committee on EU affairs or the Congress prior to and after council and European Council meetings. Nevertheless, the effectiveness of these control mechanisms depends both on the willingness and the capacity of the Joint Committee to require government members’ hearing prior to ­Council meetings, and on the willingness of the government to request ex post reporting sessions after European Council meetings. The information the Spanish government has to provide to parliament is also limited and dependent on its evaluation of the consequences of a specific EU legislative proposal in Spain. For a long time, these weaknesses did not cause major problems. This was because of Spain’s general pro-EU stance, shared by both government and parliament members, and the fact that the Spanish government could often rely on absolute majorities in the Congress (to which it is bound by a confidence relationship).

B.  Parliament and Government in EMU Matters i.  General Context Before proceeding to the analysis of how parliament participates in EMU matters, it should first be recalled that the laws governing the Joint Committee (Law 8/1994 as reformed by Law 24/2009 and Law 38/2010) have not been amended following the adoption of euro crisis law and the introduction of the European Semester. The BFSOL,140 which develops the new ‘balanced budget rule’ enshrined in Article 135 SC, does not guarantee any formal right of information to parliament either.141 It should also be noted that, as recalled in Section III.A., Spain is a regionalised state. Consequently, its regions are also affected by the content of EMU measures. For instance, the more stringent economic framework deriving from the adoption of the euro crisis law was perceived by regions as an attempt of the central government to re-centralise budgetary powers, as already noted above.

ii.  Ordinary EMU Matters: European Semester Procedures In Spain, the budgetary procedure has been largely altered after the euro crisis.142 As indicated in Section II.B., the ‘balanced budget rule’ was constitutionalised in Article 135 SC, and a new organic law on budgetary stability143 was adopted on this basis. A new fiscal council, the Independent Authority for Fiscal Responsibility (Autoridad independiente de responsibilidad fiscal) was created to ensure compliance with the TSCG and the Two Pack.144 Despite limited obligations in this sense, its President regularly appears before both parliamentary chambers.145 139 Art 3(b) Law 8/1994. 140 Law 2/2012. 141 Cristina Fasone, ‘Taking budgetary powers away from national parliaments? On parliamentary prerogatives in the Eurozone crisis’ (2015) 2015/37 EUI working paper, 1, 21. 142 Mireia Estrada-Cañamares, Germán Gómez Ventura and Leticia Díaz Sánchez, Report on Spain, Euro crisis law project, (www.euro crisislaw.eui.eu/spain/ II.2.). 143 Organic law 2/2012 on budgetary stability and financial sustainability. 144 Organic law 6/2013 on creation of the Independent Authority for Fiscal Responsibility. 145 President’s speeches available on the Independent Authority’s website (www.airef.es/intervenciones-presidente). More on this matter: Cristina Fasone and Diane Fromage, ‘Fiscal Councils: Threat or Opportunity for Democracy in the Post-Crisis Economic and Monetary Union?’ in Luigi Daniele, Pierluigi Simone and Roberto Cisotta (eds), Democracy in the EMU in the aftermath of the crisis (Cham, Springer, 2017), 161, 174.

278  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez Furthermore, as Spain was deeply affected by the economic and financial crisis and had to request assistance to restructure and recapitalise its banking sector, it sought to reassure financial markets and EU partners and institutions at all costs. While the Spanish Constitution had been considered almost untouchable since its approval after the democratic transition in 1978, the constitutional amendment to introduce the balanced-budget rule in summer 2011 was approved within a few weeks, thereby making any substantive parliamentary involvement impossible, in an attempt to prove Spain’s serious intentions to improve its situation. This new stringent framework, introduced by means of the European Semester, strongly constrains parliament and government in the exercise of their budgetary prerogatives, which now have to be guided by the limits defined at EU level. The European Semester procedures could easily be implemented in Spain. This is because the existing procedures in the Chambers’ rules of procedures were deemed sufficient to allow them to ‘deal with the European Semester process, via both their legislative functions and their control over Government’s regulations having the force of an Act’.146 Some deputies from the opposition Socialist Party (PSOE) tried (and failed) to include a requirement for the government to appear before the Joint Committee before European Semester decisions are taken at ECOFIN or European Council meetings to ensure ex ante control.147 A specific timeline was included in the BFSOL. It allows for a swift interplay between the central government and the regions. The deadline for the submission of the draft budget to parliament was not modified. The Independent Authority for Fiscal Responsibility is now involved in this part of the budgetary procedure as prescribed by euro crisis law measures. The observations formulated by the Council in the framework of the European Semester are now also taken into consideration.148 This notwithstanding, the government’s predominance is clearly visible in the operation of the European Semester procedures. The parliament receives neither the National Reform Programme, nor the Stability Programme, nor the Budget Plan before they are submitted to the EU. They have sometimes been debated ex post, however.149 Council and European Council decisions taken in the framework of the Annual Growth Survey and the Country Specific Recommendations procedure are also not commonly subject to any specific debate. Nevertheless, it has been noted that they have sometimes been mentioned in broader debates.150 Parliament’s information has, thus, remained very limited, preventing it from adequately fulfilling its scrutiny role.

iii.  Extraordinary EMU Matters: Financial Assistance Programmes As those programmes were only temporary, the modalities for their approval or functioning in Spain will not be examined in depth. Suffice it to say that there were no major political or legal difficulty in the approval of the EFSM and the EFSF. Indeed, Spain was holding the Presidency of the Council at the time, and the governing party – the Socialist Party – as well as the other major political parties at the time, had agreed on the priorities of the Presidency and on a duty

146 Annex to COSAC 21st annual report (2014) 772. 147 Mette Buskjaer Rasmussen, ‘Accountability challenges in EU economic governance? Parliamentary scrutiny of the European Semester’ (2018) 40–3 Journal of European Integration, 341, 354. 148 For instance, Art 1, Ministerial order HFP/614/2017 for the elaboration of the 2018 budget (www.boe.es/diario_boe/ txt.php?id=BOE-A-2017-7388). 149 Mette Buskjar Rasmussen 2018, ‘Accountability challenges’, 354. See, for an example of ex post debate, Annex to COSAC 21st annual report (2014), 771–2. 150 Ibid, they appear to have been taken into account when debating about the National Draft Budgetary Plans, in some occasions at least. Annex to COSAC 21st annual report (2014) 772–3.

Spain  279 to support them.151 The parliament approved the Treaty establishing the EFSF and agreed on the increase of the guarantees issued by the state. No specific measures have been adopted to allow for parliament’s participation in the ESM decision-making.152 As an EU Member State that had to request assistance for its banking sector, as stated in Section III B above, Spain was also subject to a Memorandum of Understanding and a Financial Assistance Facility Agreement.153 These two international agreements were considered to fall under Article 94(2) SC following which ‘[t]he Congress and the Senate shall be informed forthwith of the conclusion of any other treaties or agreements [other than those described in Article 94(2) Spanish Constitution’. Consequently, no parliamentary consent had to be sought. This gave rise to some discontent on the side of Parliament.154

C.  Enforcement through Courts Courts have reviewed EMU matters on very few occasions. Neither the EFSF, nor the EFSM, nor the revision of Article 136 TFEU attracted judicial review. Regions did, however, lodge cases before the SCC to try and counter the supposed re-centralisation by the central government. The actions for unconstitutionality were, however, dismissed.155 A parliamentary initiative challenged the revision of the Constitution by means of an individual complaint (recurso de amparo) and argued that the balanced budget rule amounted to a breach of fundamental rights. This action was also declared inadmissible by the SCC because it found no evidence of a violation of the right to political participation (see Section II.C above).156

V.  Resulting Relationship between EMU Related Law and National Law The Spanish constitutional system is deeply Europeanised. Since Spain joined the European Communities, the Constitution has been adaptive to the EU requirements, thanks to the openendedness of the Constitution and a constitutional culture sensitive to external influences and experiences. Without a specific European integration clause, the Spanish constitutional system has shown a strong commitment to the core principles of European integration. The easy accommodation of the principle of primacy of EU law, the deactivation in practice of the counter limits doctrine framed by the SCC and the EU law-prompted reform of the Spanish Constitution when it was necessary, are examples of this deep internalisation of EU norms.

151 Further on this: Mireia Estrada-Cañamares, Germán Gómez Ventura and Leticia Díaz Sánchez, Report on Spain, euro crisis law project, (www. euro crisislaw.eui.eu/spain/ IV.1ff.). 152 Berthold Rittberger and Thomas Winzen, ‘Parliamentary reactions to reforms of Economic and Monetary Union’ in Thomas Winzen (ed), Constitutional preferences and parliamentary reform. Explaining national parliaments’ adaptation to European integration (Oxford, Oxford University Press, 2017), 151, 156. 153 Memorando de Entendimiento sobre condiciones de Política Sectorial Financiera, hecho en Bruselas y Madrid el 23 de julio de 2012, y Acuerdo Marco de Asistencia Financiera, hecho en Madrid y Luxemburgo el 24 de julio de 2012. (www. boe.es/boe/dias/2012/12/10/pdfs/BOE-A-2012-14946.pdf). 154 Mireia Estrada-Cañamares, Germán Gómez Ventura and Leticia Díaz Sánchez, Report on Spain, Euro crisis law project, (www. euro crisislaw.eui.eu/spain/ X.4). 155 The information included in this section stems from: Mireia Estrada-Cañamares, Germán Gómez Ventura and Leticia Díaz Sánchez, Report on Spain, Euro crisis law project, (www.euro crisislaw.eui.eu/spain/ VII.3). 156 ECLI:ES:TC:2012:9A.

280  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez The euro crisis has been a stress test to this long-standing openness towards Europeanisation. Spain was one of the Mediterranean states which suffered greatly from the impact of the debt crisis. The management of the crisis through the EMU mechanisms has had a significant impact on the Spanish constitutional system. This chapter points out that two basic constitutional principles were altered during the crisis: the social welfare state and the decentralised political model of territorial organisation. The austerity measures were severe, and the fight against the excessive debt and public deficit led to, on the one hand, a tight preventive and sanctioning scheme of budgetary autonomy of regional governments and, on the other hand, to budget cuts on social services and the undermining of social rights more generally. In other words, during the crisis, Spain faced a regression both in its welfare state and its politically decentralised territorial model. It is arguable whether the EMU induced or at least influenced the devaluation of these two Spanish constitutional principles or, to the contrary, the devaluation has been the consequence of purely national decisions. In any case, this chapter shows how the EMU tools have been relevant and sometimes decisive in launching new constitutional and legislative initiatives and in national constitutional adjudication. This has been especially the case for EU soft law stemming from the EU economic governance framework and the new preventive and sanctioning scheme of fiscal discipline. The SCC led the constitutional adjudication. The SCC also eventually reinforced EU law, even EU soft law, and the mandatory commitment and loyalty of all national institutions to European duties and obligations. This chapter also shows that the parliament is generally only marginally involved in EU affairs and that this applies in particular to the EMU decision-making framework. The strong role of the central government in the EMU framework has shown the shortfalls of the Spanish parliamentary system, both at the constitutional and the legislative levels. Eventually, some citizens built the image of an unresponsive national government, without control by the SCC or the national parliament, which decides under the shield of the EU in cutting social rights and undermining local and regional autonomy. This has led to the emergence of new, strongly Eurosceptical political parties. Undoubtedly, the commitment to the European integration process in Spain has been weakened. The new political scene is much more divided towards the idea of European integration than in the 1980s when a strong consensus supported Spain’s accession to the European Communities. Nevertheless, the Spanish constitutional system still shows a profound attachment to the core EU principles. For this reason, it has not represented a barrier to EU integration and EMU norms. Even if the euro crisis has changed the political scene and weakened the commitment to the EU, the long-standing constitutional culture towards EU integration has not (yet) been affected. Future EMU reform proposals and reforms, therefore, do not face contestation from the constitutional legal perspective. The new national political scene, however, could lead to a shift in this regard.

References Enoch Albertí Rovira, ‘La cláusula europea en la Reforma de la Constitución española’ in José Álvarez Junco and Francisco Rubio Llorente (eds), El Informe del Consejo de Estado sobre la reforma constitucional: texto del informe y debates académicos (Madrid, Centro de Estudios Políticos y Constitucionales and Consejo de Estado, 2006), 457. Enoch Albertí Rovira, ‘El impacto de la crisis financiera en el Estado autonómico español’ (2013) 98 Revista Española de Derecho Constitucional, 63.

Spain  281 Ricardo Alonso García, ‘Reforma constitucional: la recepción en la Constitución del proceso de construcción europea’ in José Álvarez Junco and Francisco Rubio Llorente (eds), El Informe del Consejo de Estado sobre la reforma constitucional: texto del informe y debates académicos (Madrid, Centro de Estudios Políticos y Constitucionales and Consejo de Estado, 2006), 557. Katrine Auel, Oliver Rozenberg and Angela Tacea, ‘Fighting back? And, if so, how? Measuring parliamentary strength and activity in EU affairs’ in Claudia Hefftler, Christine Neuhold, Oliver Rozenberg and Julie Smith (eds), The Palgrave Handbook of national parliaments and the European Union (Basingstoke, Palgrave Macmillan, 2015), 60. Roberto Luis Blanco Baldés, ‘La reforma de 2011: de las musas al teatro’ (2011) 216 Claves de la razón práctica, 8. Antonio Bar Cendón, ‘España y la UE: objetivo ideológico y proyecto político’ (2018) 101 Revista de Derecho Público, 777. Antonio Bar Cendón, ‘The Spanish Parliament and Brexit’ in Thomas Christiansen and Diane Fromage (eds) Brexit and Democracy. The Role of Parliaments in the UK and the European Union (Basingstoke, Palgrave Macmillan, 2019), 207. Rafael Bustos Gisbert, ‘National Constitutional Identity in European Constitutionalism: Revisiting the Tale of the Emperor’s New Clothes in Spain?’ in Alejandro Saiz Arnaiz and Carina Alcoberro Llivina (eds) National Constitutional Identity and European Integration (Cambridge, Antwerp, Portland, Intersentia, 2013), 75. Marc Carrillo López, ‘La crisi i els drets socials en les polítiques públiques de la Generalitat’ (2018) 56 Revista Catalana de Dret Públic, 1. Pedro Cruz Villalón, ‘La cláusula general europea’ in Pedro Cruz Villalón (ed) Hacia la europeización de la Constitución española. La adaptación de la Constitución española al marco constitucional de la Unión Europea (Fundación BBVA, Bilbao, 2006), 51. Tomás De la Quadra-Salcedo Janini, ‘La incidencia de la reforma del artículo 135 de la Constitución sobre el Estado autonómico’ (2017) 2016 Informe Comunidades Autónomas, 77. Bruno De Witte, ‘Euro Crisis Responses and the EU Legal Order: Increased Institutional Variation of Constitutional Mutation?’ (2015) 11(3) European Constitutional Law Review, 434. Javier Díez-Hochleitner, ‘El derecho a la última palabra: ¿Tribunales constitucionales o Tribunal de Justicia de la Unión?’ (2013) 17 WP IDEIR, 1. Cristina Fasone, ‘Taking budgetary powers away from national parliaments? On parliamentary prerogatives in the Eurozone crisis’ (2015) 2015/37 EUI Working Paper, 1. Cristina Fasone and Diane Fromage, ‘Fiscal Councils: Threat or Opportunity for Democracy in the Post-Crisis Economic and Monetary Union?’, in Luigi Daniele, Pierlugi Simone and Roberta Cisotta (eds), Democracy in the EMU in the aftermath of the crisis (Cham, Springer, 2017), 161. Victor Ferreres Comella, Una defensa de la rigidez constitucional (2000) 23 Cuadernos de Filosofía del Derecho – DOXA, 32. Victor Ferreres Comella, The Constitution of Spain. A Contextual Analysis (Oxford and Portland, Hart Publishing, 2013). Victor Ferreres Comella, ‘Amending the National Constitutions to Save the Euro: Is This the Right Strategy?’ (2013) 48 Texas International Law Journal, 223. Victor Ferreres Comella, ‘The Independence Vote in Catalonia–The Constitutional Crisis of October 1’ (2017) Int’l J. Const. L. Blog, Oct. 4 (www.iconnectblog.com/2017/10/i-connect-symposium-the-independencevote-in-catalonia-constitutional-crisis). Diane Fromage, Les Parlements dans l’Union Européenne après le Traité de Lisbonne. La Participation des Parlements allemands, britanniques, espagnols, français et italiens (Paris, L’Harmattan, 2015). Piedad García-Escudero Márquez, ‘La acelerada tramitación parlamentaria de la reforma del artículo 135 de la Constitución’ (2012) 29 Teoría y Realidad Constitucional, 165. Fernando Gómez Pomar and Karolina Lyczkowska, ‘Spanish Courts, the Court of Justice of the European Union, and Consumer Law’ (2014) 4 Indret, Revista para el Análisis del Derecho, 1. Maribel González Pascual, ‘Methods of Interpreting Competence Norms: Judicial Allocation of Powers in a Comparative Perspective’ (2013) XIV 8 German Law Journal, 1521. Maribel González Pascual, ‘Austerity Measures and Welfare Rights: the Spanish Constitutional System under Stress’ (2014) 1–2 European Journal of Social Law, 116. Maribel González Pascual, ‘Constitutional Courts before Euro-crisis Law in Portugal and Spain: A Comparative Prospect’ (2017) 4-1 e-Publica, Revista Electrónica de Direito Público, 111.

282  Diane Fromage, Maribel González Pascual, Joan Solanes Mullor, Aida Torres Pérez Maribel González Pascual, Constitución española y gobernanza económica europea; desnudez y crisis del Estado constitucional (2017) 109-II Revista Vasca de Administración Pública, 21. Maribel González Pascual, ‘The Charter in times of crisis: the empowerment of economic rights’ in Sybe de Vries (eds.) EU citizens’ economic rights in action (Edward Elgar, Cheltenham, 2018), 143. Luis Ignacio Gordillo Pérez, ‘A propósito de la reforma constitucional de 2011’ (2012) 25 El Cronista 31, 32. Rafael Jiménez Asensio, Los Frenos del Poder. Separación de Poderes y Control de las Instituciones (Madrid, Barcelona, Buenos Aires and Sao Paulo, Marcial Pons and IVAP, 2016). Claire Kilpatrick, ‘Constitutions, social rights and sovereign debt in Europe: a challenging new area of constitutional inquiry’ (2015) WP EUI 2015/34, 16. Mario Kölling and Ignacio Molina, ‘The Spanish National Parliament and the European Union: Slow Adaptation to New Responsibilities in Times of Crisis’ in Claudia Hefftler, Christine Neuhold, Olivier Rozenberg and Julie Smith (eds), The Palgrave Handbook of National Parliaments and the European Union (Basingstoke, Palgrave Macmillan, 2015), 348. Antonio López Castillo, Alejandro Saiz Arnaiz and Victor Ferreres Comella, Constitución española y Constitución europea. Análisis de la Declaración del Tribunal Constitucional (DTC 1/2004, de 13 de diciembre) (Madrid, Centro de Estudios Políticos y Constitucionales, 2005). Miguel A Martínez Lago, Crisis fiscal, estabilidad presupuestaria y reforma de la Constitución (2011) 24 El Cronista, 17, 17. Miguel A Medina Guerrero, ‘El Estado autonómico en tiempos de disciplina fiscal’ (2012) 98 Revista Española de Derecho Constitucional, 109. Miguel A Medina Guerrero, La reforma del artículo 135 (2012) 29 Teoría y Realidad Constitucional, 131. Araceli Mangas Martín, ‘La reforma del artículo 93 de la Constitución española’ in José Álvarez Junco and Francisco Rubio Llorente (eds), El Informe del Consejo de Estado sobre la reforma constitucional: texto del informe y debates académicos (Madrid, Centro de Estudios Políticos y Constitucionales and Consejo de Estado, 2006), 533. Pablo Pérez Tremps, Las reformas de la Constitución hechas y no hechas (Valencia, Tirant lo Blanch, 2018). Sonia Piedrafita, ‘The Spanish parliament and EU affairs in the post Lisbon Treaty era: all change?’ (2014) 20-4 The Journal of Legislative Studies, 451. Mette Buskjar Rasmussen, ‘Accountability challenges in EU economic governance? Parliamentary scrutiny of the European Semester’ (2018) 40-3 Journal of European Integration, 341. Maria J Ridaura Martínez, ‘La reforma del artículo 135 de la Constitución española: ¿pueden los mercados quebrar el consenso constitucional?’ (2012) 29 Teoría y Realidad Constitucional 237. Berthold Rittberger and Thomas Winzen, ‘Parliamentary reactions to reforms of Economic and Monetary Union’ in Thomas Winzen (ed), Constitutional preferences and parliamentary reform. Explaining national parliaments’ adaptation to European integration (Oxford, Oxford University Press, 2017), 151. Violeta Ruiz Almendral, ‘The Spanish Legal Framework for Curbing the Public Debt and the Deficit’ (2013) 9 European Constitutional Law Review, 190. Alejandro Saiz Arnaiz, La apertura constitucional al derecho internacional y europeo de los derechos humanos. El artículo 10.2 de la Constitución española (Madrid, Consejo General del Poder Judicial, 1999). Alejandro Saiz Arnaiz, ‘De primacía, supremacía y derechos fundamentales en la Europa integrada: la Declaración del Tribunal Constitucional de 13 de diciembre de 2004 y el Tratado por el que se establece una Constitución para Europa’ in Antonio López Castillo, Alejandro Saiz Arnaiz and Victor Ferreres Comella (eds) Constitución Española y Constitución Europea (Madrid, Centro de Estudios Políticos y Constitucionales, 2005), 6. Ariadna Salazar Quiñonez, La participación de los parlamentos nacionales en la Unión Europea (Madrid, Congreso de los Diputados, 2015). Joan Solanes Mullor, ‘The right to housing and the protection of family life and vulnerable groups: European judicial activism’ in Maribel González Pascual, Aida Torres Pérez (eds), The Right to Family Life in the European Union (Abingdon and New York, Routledge, 2017), 214. Juan José Solazabal Echavarría, ‘El Tratado Constitucional europeo y la reforma de la Constitución española’ (2005) 57 Revista del Ministerio de Trabajo y Asuntos Sociales, 33. Joaquin Tornos Mas, ‘Derechos sociales, Comunidades Autónomas y crisis económica’ (2017) 2016 Informe Comunidades Autónomas, 47. Aida Torres Pérez, ‘The Judicial Impact of European Law in Spain’ (2011) 30 Yearbook of European Law, 159. Aida Torres Pérez, ‘Melloni in Three Acts: From Dialogue to Monologue’ (2014) 10 European Constitutional Law Review, 308.

11 France The Paradox of Constitutional Adaptability in a Member State Running Budget Excessive Deficits LAETITIA GUILLOUD-COLLIAT, FABIEN TERPAN

Abstract: After having recalled the main characteristics of the French constitutional system, and the progressive establishment of ex ante and ex post constitutional review during the Fifth Republic (1958–), this chapter examines the constitutional foundations of French membership to the Economic and Monetary Union (EMU). It appears that very few constitutional provisions concern the EMU and the ratification of EU treaties, including EMU rules, has not created significant problems. When new rules were decided at the EU level to confront the economic and financial crisis, a vigorous political debate developed in France, but potential constitutional issues were managed quite smoothly. France might not comply well with EU budgetary constraints, as it has been regularly placed under the excessive deficit procedure, but it does not oppose EU economic integration through constitutional means. We argue that, in the case of France, EMU related law has triggered more political issues than legal/constitutional ones. Key words: Economic and Monetary Union; Budget rules; Treaty ratification; Constitutional Review; Sovereignty.

I.  Main Characteristics of the French Constitutional System and Constitutional Culture The Constitution of 1958 established a new political regime in France, the so-called Fifth Republic, often considered as partly presidential and partly parliamentary. As in other presidential systems, the president enjoys strong powers and legitimacy that derives from the election (direct universal suffrage since 1962). As the Head of the State, he appoints the prime minister, and on his proposal, the ministers composing the government. While the government is directly accountable to the parliament, like in any parliamentary system, the president is not. The parliament is composed of two chambers: the National Assembly and the Senate. The National Assembly enjoys the greater legitimacy, its deputies being elected by direct universal suffrage, compared to the senators who are elected by a college of grand electors. With greater legitimacy comes greater power: the National Assembly is the most important power within the French bicameral parliament and has the final say during the legislative procedure. In 1958, the Constitutional Council’s

284  Laetitia Guilloud-Colliat, Fabien Terpan main function was to control the parliament and make sure that it did not overstep its competences. The spirit of the new Constitution was to ‘rationalise’ the parliamentary system (ie, to limit the powers of the parliament so that the executive power remains stable and relatively protected from no-confidence votes). The Constitutional Council has become much more than that, as a real system of constitutional review developed in the first decades of the Fifth Republic.

A.  The Progressive Emergence of a System of Constitutional Review The current Constitution of France, adopted on 4 October 1958 through a process driven by Charles de Gaulle, inaugurated the Fifth Republic. Since then, the Constitution has proved flexible enough to avoid any regime change establishing the Sixth Republic.1 It has been amended 24 times, most recently on 23 July 2008, through two different formal procedures: a parliamentary procedure (Art 89) and a referendum (Art 11). The Constitutional Council enjoys both consultative and judicial powers, its main task being to ensure, through ex ante and ex post review, the constitutionality of the laws adopted by the parliament. It is comprised of nine members who are appointed for nine-year terms. The president of the Republic, the president of the National Assembly and the president of the Senate each appoint three members. In addition to these nine members, former presidents of the Republic are members as of right, and for life. This composition remains a controversial issue, as it is often perceived as undermining the Council’s legitimacy.2 Due to the way its members are appointed, the Constitutional Council cannot be independent of political actors, and its neutrality could be questioned. However, there is no evidence that the Council is systematically continuously biased. On the contrary, decisions in favour and against the government are balanced. The Constitutional Council has benefited from the political changeover, which, in turn, benefited from the jurisprudence of the Constitutional Council.3 Still, the content of the Constitution has been highly influenced by the interpretations provided by the Constitutional Council since the early 1970s. Indeed, in the landmark decision on ‘Freedom of association’ made on 16 July 1971,4 the Constitutional Council has made it clear that not only the articles of the 1958 Constitution but also its Preamble are part of the so-called ‘block of constitutionality’, with which statute and regulatory acts must comply. The Preamble refers to three texts: the Declaration of the Rights of Man and the Citizen adopted on 27 August 1789; the Preamble to the Constitution of 27 October 1946 (Fourth Republic), which includes a number of economic and social rights and principles; the Charter for the environment adopted in 2004 and enacted on 1 March 2005. All these texts are part of the Constitution. The same is true for the three categories of non-written or implicit norms established by the Council. These categories are fundamental principles recognised under the Law of The Republic, principles and objectives of constitutional value. The Constitutional Council has established 11 ‘fundamental principles recognised under the law of the Republic’. To be established as such, the Council set out a series of conditions.5 1 Guy Carcassonne, ‘Amendments to the French constitution: One surprise after another’ (1999) 22(4) West European Politics, 76. 2 Henri Roussillon, ‘Le Conseil constitutionnel: une légitimité contestée’, in Jacques Raibaut and Jacques Krynen (eds), La légitimité des juges (Presses de l’Université Toulouse Capitole, LGDJ – Lextenso éditions, 2004) 126. 3 Marie-Christine Steckel, Le Conseil constitutionnel et l’alternance (Paris, LGDJ, 2002). 4 Décision n° 71-44 DC du 16 juillet 1971, Loi complétant les dispositions des articles 5 et 7 de la loi du 1 juillet 1901 relative au contrat d’association. 5 Conditions required in three main decisions: Décision n° 88-244 DC du 20 juillet 1988, Loi portant amnistie; Décision n° 89-254 DC du 4 juillet 1989, Loi modifiant la loi n° 86-912 du 6 août 1986 relative aux modalités d’application des privatisations; Décision n° 93-321 DC du 20 juillet 1993, Loi réformant le code de la nationalité.

France  285 These conditions include drawing from republican legislation (this puts aside rules adopted during the Vichy regime or Napoleon’s empire); drawing from legislation adopted before the Preamble to the 1946 Constitution; the lack of any opposing republican legislation; having a general and non-contingent dimension; having a manifest fundamental nature. The fundamental principles include individual freedom; freedom of conscience; independence of administrative courts; jurisdiction of administrative courts; independence of university professors; protection of private real property by the judicial power; right of defence; freedom of association; freedom to teach; children criminal responsibility. Five ‘principles of a constitutional value’ were created by the Council without any precise source in a constitutional text: continuity of the state and civil service; protection of human dignity; contractual freedom; freedom to undertake economic activity; respect of private life. Finally, the Constitutional Council has developed a third category – the ‘objectives of constitutional value’ – which includes the protection of public order, respect for other’s freedom and the pluralist nature of the expression of schools of thought and opinion.6 A minimal number of the Council’s decisions were based on the non-compliance with these objectives. Two main categories of powers have been conferred on the Constitutional Council: consultative and litigation powers. As far as consultative powers are concerned, the Constitutional Council, as well as the prime minister and the presidents of the Houses of Parliament, issue an opinion regarding the implementation of Article 16 of the Constitution. This helps control the president’s powers to take measures when the institutions of the Republic, the independence of the Nation, the integrity of its territory or the fulfilment of its international commitments are under serious and immediate threat, and where the proper functioning of the constitutional public authorities is interrupted.

The Council is also consulted by the government on texts relating to the organisation of counts for elections of the president of the Republic and referenda. Finally, it provides observations on past parliamentary and presidential elections as well as on upcoming elections with the goal of recommending to the public authorities all measures capable of improving the conduct of these elections. As far as judicial powers are concerned, the Council is competent in two different fields: electoral dispute and referenda, and constitutionality review. With regard to the former category, the Constitutional Council oversees the regularity of the election of the president of the Republic and referenda, and rules on the regularity of elections of MPs and their eligibility. Several changes have impacted the constitutionality review. In the original 1958 Constitution of the Fifth Republic, the Constitutional Council was not endowed with strong judicial powers. Its main task was to ensure that the allocation of competences between the executive and legislative powers was respected. It was already possible at that time for the president of the Republic, the prime minister as well as the presidents of the two Houses to defer a law to the Constitutional Council before its promulgation for constitutionality review (Art 61). This ex ante review was not supplemented by the possibility of an ex post control. However, three main changes have strengthened constitutional review in the French judicial system. First, the Constitutional Council has contributed to its empowerment through the abovementioned decision of 16 July 1971. By enlarging the scope of the Constitution to the ‘constitutionality block’, the Council transformed into a defender of fundamental rights. Another important evolution occurred when the constitutional amendment of 29 October 1974 allowed 60 deputies or

6 Décision

no 82-141 DC du 27 juillet 1982, Loi sur la communication audiovisuelle.

286  Laetitia Guilloud-Colliat, Fabien Terpan senators to make a reference to the Constitutional Council. This amendment made it possible for the political opposition in the two Houses to challenge a draft law presented by the government. Finally, the possibility to challenge promulgated statute acts (ex ante review) was introduced by the constitutional amendment of 23 July 2008. According to Article 61(1) of the revised Constitution, ‘If, during proceedings in progress before a court of law, it is claimed that a statutory provision infringes the rights and freedoms guaranteed by the Constitution’, the matter may be referred by the Council of State (CoS) – for administrative matters – or by the Court of Cassation – for civil and criminal matters – to the Constitutional Council, within a determined period. The preliminary procedure on constitutionality (question prioritaire de constitutionnalité, or QPC) has led to the annulment of important laws like the one on police custody in 2010.7 The establishment of the preliminary reference procedure on constitutionality made the constitutional review more effective. Since the 2008 constitutional amendment, statute laws can be challenged before and after their promulgation. The referrals increased tremendously following the amendment. The number of decisions based on QPC far exceeds the number of traditional review of laws and treaties. In 2018, 64 QPC decisions were delivered, while only 19 derived from traditional referrals by institutional/political actors. The Constitutional Council’s new powers led to improved compliance with the Constitution. The constitutional review system is now more complete, with the Council exercising ex ante and ex post control of the legislation, while the CoS and the Court of Cassation, apart from sending QPC, are still in charge of controlling that the Constitution is respected by non-legislative acts and practices.

B.  Economic Principles in the French Constitution There are very few rules of an economic nature in the French Constitution as such.8 However, through the development of the ‘constitutionality block’, which includes other texts referred to in the Preamble of the Constitution, the Constitutional Council established a number of economic principles of constitutional value, deriving them from the Preamble to the 1946 Constitution as well as the Declaration of the Rights of Man and the Citizen of 1789. The Council has evolutionarily interpreted these principles, adapting them to the economic and social context. Some of them limit public action in the economic field, while others favour it. Classic principles include, among others, the protection of private property (as well as public property), the freedom of commerce and industry and equality. More recent principles have enlarged constitutional rules to principles said to be ‘particularly suited to our times’. These principles involve the participation of workers to collective decisions on employment conditions and nationalisation of firms in charge of national public service. Other principles have been cautiously constitutionalised, like the right to strike, acknowledged by the Council but reconciled with the continuity of public services. Other principles included in the 1946 Preamble and the Declaration of the Rights of Man and the Citizen of 1789 are considered too general to be recognised as constitutional. The establishment of the QPC might provide opportunities for the creation of new principles. Positive benefits like the right to employment, the right to housing, solidarity and sustainable 7 Décision n° 2010-14/22 QPC du 30 juillet 2010, M Daniel W et autres [Garde à vue]. 8 Hugues Rabault, ‘La Constitution économique de la France’ (2000) Revue Française de Droit Constitutionnel, 707; Philippe Terneyre, La constitutionnalisation du droit économique, Association française de droit constitutionnel, 1958-2008, 50e anniversaire de la Constitution française (Paris, Dalloz, 2008) 427.

France  287 development might become constitutional, provided that the Council opts for bold interpretations. An overview of the most recent jurisprudence shows that it is far from certain that the Council will follow that route.9 The inclusion in the French Constitution of the notion of budget balance has been discussed since the 1970s and the presidency of Valéry Giscard d’Estaing.10 It was only with the 2008 constitutional amendment, that an ‘objective of balanced accounts for public administrations’ was finally introduced in Article 34 of the Constitution. How this objective should be achieved, however, remains unclear, making Article 34 of the Constitution too imprecise to have a genuinely constraining effect. Nevertheless, the EMU can certainly be seen as one of the main reasons why macroeconomic policies have been constitutionalised (see sec III).11 As far as the organisation of public finances is concerned, the same Article 34 provides that ‘Finance Acts (loi de finances) shall determine the revenue and expenditure of the state in the conditions and with the reservations provided for by an Institutional Act (loi organique)’. More generally, Article 34 of the Constitution ‘may be further specified and completed by an Institutional Act’. In the hierarchy of norms, the latter is situated between the Constitution and ordinary law. It is sometimes referred to as the finance constitution of France. The last institutional law (loi organique relative aux lois de finance)12 was adopted in 2001 and is applicable since 2006. Article 34 of the Constitution also provides that ‘Programming Acts (loi de programmation) shall determine the objectives of the action of the State’. These Programming Acts must comply with both the Institutional Act and the Constitution.

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  Constitutional Provisions Related to EMU There is no specific provision on the EMU in the Constitution of the Fifth Republic. However, the EMU and other provisions of the Maastricht Treaty, have triggered the introduction of a new chapter in the French Constitution dealing with the membership of the EU. Indeed, on 9 April 1992, the Constitutional Council, called upon by the president of the Republic, made it clear that ‘the French Constitution as it stands precluded France to join in the EMU provided for by the Maastricht treaty’.13 Several provisions of the new treaty were declared unconstitutional. In particular, the problematic provisions were Article B providing for the establishment of the EMU and leading to a single currency, Article G inserting provisions dealing with the progressive introduction of a single currency and the monetary policy conducted by an independent European

9 Arnaud Sée, ‘La question prioritaire de constitutionnalité et les libertés économiques’ (avril 2014) Revue Juridique de l’Economie Publique 718, 1; Mathilde Kamal and Leah Perez, ‘La liberté d’entreprendre à la lumière de la question prioritaire de constitutionnalité’ (avril–juin 2012) Revue Lamy de la Concurrence, 31, 49. 10 Bertrand du Marais, ‘Constitution économique ou constitutionnalisation de l’économie ?‘ in F Martucci and C Mongouachon (eds), La constitution économique, En hommage au Professeur Guy Carcassonne (Paris, Editions La Mémoire du Droit, 2015) 3. 11 For a critical view: Matthieu Caron, ‘Réflexions sur la constitutionnalisation des politiques économiques conjoncturelles’ (2016) Revue du droit public, 2, 557. Julien Defline, ‘De la constitutionnalisation des normes financières à la constitutionnalisation de théories économiques’ (2018) 4, Revue du droit public, 1129. 12 Loi organique n° 2001-692 du 1 août 2001 relative aux lois de finances. 13 Décision n°92-308 DC du 9 avril 1992, Traité sur l’Union européenne.

288  Laetitia Guilloud-Colliat, Fabien Terpan Central Bank. For France to ratify the Maastricht Treaty, and join the eurozone, a constitutional reform was necessary. This was done two months later, thanks to a constitutional law 92(554) of 25 June 1992. That law introduced a new title dedicated to the EU in the French Constitution and removed from the latter any reference to the ‘franc’ being the currency of the Republic. However, the independence of the French Central Bank, required by the Maastricht Treaty, was not included in the Constitution. The adoption of a legislative Act14 was enough to grant the Bank independence and clear the path for the EMU. Since then, EMU, as other policy areas, is covered by the general membership clauses of the French Constitution contained in Title XV (Arts 88-1 to 88-7) as well as the provisions on international treaties contained in Title VI (Arts 52 to 55). According to Article 88-1, the Republic shall participate in the European Union constituted by States which have freely chosen to exercise some of their powers in common by virtue of the Treaty on European Union and of the Treaty on the Functioning of the European Union, as they result from the treaty signed in Lisbon on 13 December, 2007.

This includes all powers conferred upon the EU in the field of EMU. Other provisions in Title XV on the EU concern the European arrest warrant pursuant to acts adopted by EU institutions (Art 88-2), the right to vote and stand as a candidate in municipal elections (Art 88-3), communication to the parliament of all draft of EU legislative acts (Art 88-4), European resolutions passed by the French parliament (Art 88-4), accession of a new member to the EU (Art 88.5), the involvement of the two Houses in the control of the subsidiarity principle (Art 88.6), and specific powers of the Houses when revisions of EU treaties are decided under a simplified procedure (Art 88-7). Treaties are negotiated and ratified by the president of the Republic according to Article 52 of the Constitution. This includes Treaty revisions on EMU, as well as intergovernmental treaties on economic issues, like the TSCG and the Treaty on ESM. However, Article 53 specifies that Peace Treaties, Trade agreements, treaties or agreements relating to international organization, those committing the finances of the State, those modifying provisions which are the preserve of statute law, those relating to the status of persons, and those involving the ceding, exchanging or acquiring of territory, may be ratified or approved only by an Act of Parliament.

EU reform treaties, as well as the TSCG and the TESM, are clearly among the agreements listed in Article 53 of the Constitution. They can be considered ‘treaties or agreements relating to international organisation’ and possibly treaties ‘committing the finances of the state’. Thus, they have to be ratified in identical terms by an absolute majority of the members in each of the two Houses of the Parliament (Art 53). Parliamentary ratification can be replaced by a referendum if decided by the president. Under Article 11 of the Constitution, the president of the Republic may, on a recommendation from the government and while parliament is in session, or on a joint motion of the two Houses, submit to a referendum a Government Bill which ‘provides for authorisation to ratify a treaty which, although not contrary to the Constitution, would affect the functioning of the institutions’. This was the case with the Maastricht Treaty and the Treaty establishing a Constitution for Europe. Article 54 of the Constitution provides for judicial control by the Constitutional Council on a referral from the president of the Republic, the prime minister, the president of one of the Houses, or 60 Members of the National Assembly or Senators. If the Constitutional Council holds that the treaty contains a clause contrary to the Constitution, the ratification may only be given after amending the Constitution. Once ratified, the treaty prevails over acts of parliament (Art 55).

14 Loi

no 93-980 du 4 août 1993 relative au statut de la Banque de France.

France  289 Article 85 of the Constitution regulates the accession of a new EU member, which may include accession to EMU: ‘Any Government Bill authorizing the ratification of a treaty pertaining to the accession of a state to the European Union shall be submitted to a referendum by the president of the Republic’. If a motion is ‘adopted in identical terms in each House by a three-fifths majority’, an exception can be made and ratification decided by the Congress (formed by the National Assembly with the Senate) by a three-fifths majority. The parliament, by the passing of a motion in identical terms by the National Assembly and the Senate, may oppose modification of the rules governing the adoption of EU acts when this modification is to be decided under the simplified revision procedure (Art 48 TEU). This may be used to resist an evolution towards majority voting in the Council in the field of EMU. As far as secondary legislation on EMU is concerned, there is an obligation for the­ government to lay before the National Assembly and the Senate drafts of European legislative acts as well as other drafts of or proposals for acts of the European Union as soon as they have been transmitted to the Council of the European Union.

In response, ‘European resolutions’ can be passed by the two Houses on these drafts or proposals, according to their rules of procedure, as well as on ‘any document issuing from an EU institution’ (Art 88-4). Thereby, the two Houses control the compliance with the principle of subsidiarity before and after an EU act is adopted (Art 86).

B.  Constitutional Review of European and International Treaties and Constitutional Amendments In its Decision on the Treaty establishing a Constitution for Europe,15 the Constitutional Council made it clear that the French Constitution is at the very top of the domestic legal order. This formulation was confirmed in the Decision on the Lisbon Treaty.16 The mission of the Council is to ensure compliance with the Constitution. This includes Article 54 of the Constitution, on the basis of which international and European treaties can be controlled. Treaties can be signed and ratified and have primacy over domestic laws, provided that they have not been declared unconstitutional by the Constitutional Council. The Council issued decisions on several EU Treaties: the Maastricht Treaty in 1992,17 the Amsterdam Treaty in 1997,18 the Treaty establishing a Constitution for Europe in 200419 and the Lisbon Treaty in 2007.20 Each time, compliance issues have been raised, the Constitution has been amended. The TSCG – an intergovernmental treaty related to EU law – has also been reviewed by the Council.21 15 Décision n° 2004-505 DC du 19 novembre 2004, Traité établissant une Constitution pour l’Europe. 16 Décision n°2007-560 du 20 décembre 2007, Traité de Lisbonne modifiant le traité sur l’Union européenne et le traité instituant la Communauté européenne. 17 Décision n°92-308 DC du 9 avril 1992, Traité sur l’Union européenne, et Décision n° 92-312 DC du 2 septembre 1992, Traité sur l’Union européenne. See: Peter Oliver, ‘The French Constitution and the Treaty of Maastricht’ (1994) 43 The International and Comparative Law Quarterly 1, 1. 18 Décision n°97-394 DC du 31 décembre 1997, Traité d’Amsterdam modifiant le Traité sur l’Union européenne, les Traités instituant les Communautés européennes et certains actes connexes. 19 Décision n°2004-505 DC du 19 novembre 2004, Traité établissant une Constitution pour l’Europe. 20 Décision n° 2007-560 DC du 20 décembre 2007, Traité de Lisbonne modifiant le traité sur l’Union européenne et le traité instituant la Communauté européenne. 21 Décision n° 2012-653 DC du 9 août 2012, Traité sur la stabilité, la coordination et la gouvernance au sein de l’Union économique et monétaire.

290  Laetitia Guilloud-Colliat, Fabien Terpan The Council does not control whether national laws comply with European and International treaties. This was clarified in a decision issued in 1975.22 In particular, the ordinary courts for both administrative and civil/criminal matters are in charge of ensuring compliance with Article 55 of the Constitution, which states that: ‘Treaties or agreements duly ratified or approved shall, upon publication, prevail over Acts of Parliament, subject, with respect to each agreement or treaty, to its application by the other party’. This has been applied to the European Treaties through consistent case-law.23 The principle of primacy established in the CJEU’s case-law is not accepted as such by the Constitutional Council. Similar to the highest courts in Germany, Italy, Denmark, Spain or Poland, the Constitutional Council could reject the application of a European norm in case of non-compliance with a constitutional one. This position has been constant since a 2004 decision ‘Loi pour la confiance dans l’économie numérique’.24 However, the Council also takes into account the constitutional obligation that EU directives have to be transposed, based on Article 88-1 of the Constitution. While conducting a constitutional review of a French law transposing a directive, the Council checks whether the French act contradicts both the content and the general objectives of the directive.25 If the directive conflicts with a rule or a principle, which is part of the French constitutional identity, the requirement to transpose the directive would be discarded. However, this has not happened yet. On these points, the newly introduced preliminary mechanism had no impact so far. As explained by the Constitutional Council in a decision issued in 2010:26 In a preliminary procedure, it is up to the ordinary courts to make sure that the primacy of European law is respected. It remains possible, in the framework of the QPC, to refer a preliminary question to the CJEU. An applicant cannot use the requirement to transpose EU directives in a preliminary procedure. This three-points-argumentation is quite close to the reasoning of the CJEU in Melki and Abdeli.27

III.  Constitutional Obstacles to EMU Integration A.  Obstacles to the Implementation of the Crisis Management Measures Within and Outside the EU In France, the reform of the EMU raised constitutional concerns and generated political debates. However, the implementation of crisis management measures has not confronted serious constitutional obstacles.

22 Décision n°74-54 DC du 15 janvier 1975, Loi relative à l’interruption volontaire de grossesse, con 2 à 7. 23 Décisions n° 91-293 DC du 23 juillet 1991, Loi portant diverses dispositions relatives à la fonction publique, cons 4 et 5; 91-298 DC du 24 juillet 1991, Loi portant diverses dispositions d’ordre économique et financier, cons 20 et 21; 99-416 DC du 23 juillet 1999, Loi portant création d’une couverture maladie universelle, cons 13 et 16. 24 Décision n° 2004-496 DC du 10 juin 2004, Loi pour la confiance dans l’économie numérique, cons 7 et six décisions ultérieures. 25 Décision n° 2006-543 DC du 30 novembre 2006, Loi relative au secteur de l’énergie. 26 Décision n° 2009-605 DC du 12 mai 2010, Loi dite « Jeux en ligne ». 27 CJEU, Judgment of the Court (Grand Chamber) of 22 June 2010, Aziz Melki (C-188/10) and Sélim Abdeli (C-189/10).

France  291

i.  Budgetary-Balanced Rules Before the TSCG In the 2002–05 period, France was at the heart of the debate over the Stability and Growth Pact (SGP). Together with Germany (and later Portugal and Greece), France, although a strong promoter of the SGP when it was created, ran excessive deficits under the Pact’s definition for some years. This has led to an animated political debate in France, the EU’s budgetary rules often presented as insufficiently flexible. The Pact has proved to be unenforceable against France and Germany, reminiscent of the softness of the control mechanism.28 The CJEU, in a case brought by the Commission, forced the Council to use the procedures laid down by the Treaties when deciding on possible sanctions.29 However, no sanctions were adopted and, instead, the rules in the Pact were relaxed.30 At that time, constitutional issues were not raised in France, although arguments related to sovereignty were often used against the SGP. However, an evolution towards the constitutionalisation of budgetary objectives started in this very context, with the first achievement in 2008. Indeed, since the 2008 amendment of the French Constitution, Article 34 of the Constitution provides that ‘The multiannual guidelines for public finances shall be established by Programming Acts. They shall contribute to achieving the objective of balanced accounts for public administrations’. Additional information is given by the Institutional Act (known as the Organic Law relating to Financial Legislation – LOLF),31 which states that in the conditions and under the reservations provided for by the Institutional Act, Finance Acts shall determine, for a single fiscal year, the nature, amount and for a single fiscal year, the nature, amount, and allocation of the resources and expenditures of the State, as well as the resulting budgetary and fiscal balance (Art 1).

Article 50 (LOLF) refers to EU rules by asking that a report on the situation as well as the economic, social and fiscal perspectives of the nation be annexed to the Finance Act and take into account the European commitments and recommendations. In both Article 34 of the Constitution and Article 1 of the Institutional Act, however, the idea of a balanced budget is presented only as an objective to be achieved by state authorities rather than a proper legal obligation. In 2011, President Nicolas Sarkozy tried to further constitutionalise the balanced-budget rules. The proposal was to replace non-binding Programming Acts by a new category of acts, the Framework Acts for the balance of public finances. They would have been opposable to finances and social security finances acts and placed under the jurisdiction of the Constitutional Council to ensure the effectiveness of the balance of public administration accounts. As President Sarkozy could not gather a three-fifths majority in the Congress, the constitutional amendment32 was rejected. The main arguments against the project were the loss of parliamentary control over public finances and the excessive power attributed to the Constitutional Council. More generally, the debates in both the National Assembly and the Senate emphasised the reluctance of many deputies towards the enshrinement of austerity policies in the Constitution.33 28 Fabien Terpan, ‘Soft Law in the European Union – The Changing Nature of EU Law’ (2015) 21(1) European Law Journal, 68; Fabien Terpan, ‘La gouvernance économique de l’Union européenne: une juridicisation en trompe-l’oeil?’ in M Vellano (ed), L’avenir des organisations internationales. Perspectives juridiques – Il futuro delle organizzazioni internazionali. Prospettive giuridiche (Napoli, Editoriale Scientifica, 2015) 443. 29 CJEU, Commission vs Council, C-27/04, ECLI:EU:C:2004:436. 30 Sabine Saurugger and Fabien Terpan, ‘Do crisis lead to the policy change? The Multiple-streams framework and the EU’s economic governance instruments’ (2016) 49(1) Policy Sciences, 35. 31 Loi organique n° 2001-692 du 1 août 2001 relative aux lois de finances. 32 Projet de loi constitutionnelle relatif à l’équilibre des finances publiques, 16 mars 2011. 33 www.assemblee-nationale.fr/13/dossiers/equilibre_finances_publiques.asp. Consulted on 25 April 2018.

292  Laetitia Guilloud-Colliat, Fabien Terpan The SGP reforms by the Two and Six Pack legislation have not been controlled by the Constitutional Council. Unlike European and international treaties, EU legislative measures are not subject to judicial control by the Constitutional Council (with a few exceptions, see below). Furthermore, the Constitutional Council has not developed an ultra vires doctrine towards EU acts that are not backed by primary EU law.

ii.  The Treaty on Stability, Coordination and Governance/Fiscal Compact According to Article 88-1 of the Constitution The Republic shall participate in the European Union constituted by States which have freely chosen to exercise some of their powers in common by virtue of the Treaty on European Union and of the Treaty on the Functioning of the European Union, as they result from the treaty signed in Lisbon on 13 December, 2007.

However, and as recalled by the Constitutional Council in its decision n°2012-653 DC34 on the TSCG in the EMU (Fiscal Compact),35 when international commitments ‘include a clause which does not comply with the Constitution, challenges constitutionally guaranteed rights and freedoms, and endangers core elements of the exercise of national sovereignty, the obligation to ratify them must follow a constitutional amendment’. The constitutional issue raised by the TSCG was not about the content of the Treaty obligations, but the implementing modalities that were foreseen. The Constitutional Council considered that, according to the Fiscal Compact, EU Member States had two different options. Indeed, Article 3§2 of the Fiscal Compact provides that the rules of the new Treaty ‘shall take effect in the national law of the Contracting Parties … through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes’. Thus, including the rules in the Constitution was only an option, which, in the case of France, would have been problematic because it affected the prerogatives of both the parliament and government in adopting budget laws. A revision of Articles 34 and 47 of the Constitution, specifying the division of powers between the parliament and the Council, would have been required. However, a second option was also possible, according to Article 3§2 of the Fiscal Compact if ‘provisions of binding force and permanent character’ are not constitutional, they can be ‘otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes’. In France, the second option ‘paved the way for a ‘soft’ implementation of the TSCG, which did not require amending the Constitution’.36 After the 34 9 August 2012. 35 C(2017) 1201 final, 22 February 2017. 36 Rémi Bouchez, ‘The perspective of the French Council of State’, in La règle d’or des finances publiques en Europe: son impact dans les systèmes budgetaires nationaux, Europe’s Golden Rule of Public Finances: its impact on national budget systems, Acts of the International Symposium, 27–28 March 2014, Lille, 73. See also: Francette Fines, ‘A propos de quelques limites constitutionnelles au fédéralisme économique européen, Etude comparative des jurisprudences nationales sur les mesures européennes de sauvegarde de la zone Euro’ in S De la Rosa, F Martucci and E Dubout, L’Union européenne et le fédéralisme économique, Discours et réalités (Bruxelles, Bruylant, 2015) 213. Jean-Claude Bonichot, ‘Le juge constitutionnel français et la “règle d’or”: reviser ou ne pas reviser la constitution? That was the question’, in V Kronenberger et al, De Rome à Lisbonne Mélanges en l’honneur de P Mengozzi (Bruxelles, Bruylant, 2013) 855. Jérôme Roux, ‘Le Conseil Constitutionnel et le Traité sur la stabilité, la coordination et la gouvernance au sein de l’Union économique et monétaire’ (2012) 4, Revue Trimestrielle de Droit Européen, 855. Anne Levade, ‘TSCG et Constitution française: quand l’interprétation fait la comptabilité !’ (2012) 4, Constitutions, 854. Xavier Magnon, ‘Un traité international de mise en oeuvre du droit de l’Union européenne devant le Conseil constitutionnel: la ratification du traité sur la stabilité, la coordination et la gouvernance dans l’Union économique et monétaire’ (2012) 92, Revue française de droit constitutionnel, 854. Eric Oliva, ‘La decision du Conseil constitutionnel du 9 août 2012’ (2012) 6, Revue Française de Droit Administratif, 1043.

France  293 failure of the 2011 attempt to introduce the ‘golden rule’ in the French Constitution, a constitutional amendment was risky. According to the Constitutional Council, an Institutional Act (‘organic law’) could be adopted in order to govern public finance Programming Act and ensure that the latter comply with the rules of the TSCG. This Institutional Act would impose that programming acts contain a medium-term balance objective and a structural balance trajectory.37 Thus, the organic law seeks to go as far as possible towards implementing a new budgetary ‘discipline’ but without crossing the set boundaries: without infringing the principle of annuality and the Government and Parliament’s freedom of discretion with regard to the content of budget and social security finance laws, at least not at the legal level.38

The TSCG was ratified by France on 22 October 2012, and the Organic Law was adopted on 17 December 2012.39 In addition to the provisions relating to public finance programming laws, the organic law established the High Council of Public Finance. That Council was affiliated with the Court of Auditors, and responsible for monitoring compliance with these rules at national level. As any organic law is necessarily subject to constitutional review according to Article 46 of the Constitution,40 the Constitutional Council reviewed the TSCG rules a second time. As public finance Programming Acts have no legally binding effect on Finance Acts but only set out guidelines and objectives, compliance of the French legal provisions with European law was doubtful. As a matter of fact, ‘the system resulting from these reforms is rather one of ‘comply-or-explain’, but that does not mean it will be ineffective’.41 Deviation from the structural balance trajectory is subject to the control of the High Council of Public Finance, which is responsible for ensuring compliance with the rules at national level as mentioned above. More precisely, the High Council ensures that the path towards a return to balanced public finances is consistent with France’s European commitments. To this end, the High Council assesses whether the government’s macroeconomic forecasts are realistic and decides on the consistency of the annual objectives presented in the financial texts with the multiannual public finance objectives. If the High Council of Public Finances identifies a significant deviation, the correction mechanism is activated. … When the correction mechanism is activated, the Government has the obligation to respond to the deviation in the next budget bill. … These correction measures must make it possible to return to the structural balance trajectory defined in the planning act within a maximum time of limit of two years.42

The European Commission, in its report presented under Article 8 of the Fiscal Compact,43 found that France complied with the requirement to implement Article 3§2 TSCG. More precisely, the

Nicolas Galliffet, ‘L’office du juge constitutionnel français et le traité sur la stabilité, la coordination et la gouvernance au sein de l’Union économique et monétaire’ (2015) 132, Revue française de finances publiques, 267. 37 Décision n° 2012-653 DC du 9 août 2012, Traité sur la stabilité, la coordination et la gouvernance au sein de l’Union économique et monétaire, cons 24. 38 Bouchez, ‘The perspective of the French Council of State’, 73. 39 Loi organique n°2012-1403 du 17 Décembre 2012 relative à la programmation et à la gouvernance des finances publiques. 40 Stéphane Pierré-Caps, ‘Le conseil constitutionnel et la stabilité économico-financière’ (2013) 30, Civitas Europa, 145. 41 Bouchez, ‘The perspective of the French Council of State’, 74. 42 Sophie Mantel, ‘The role of France’s Budget Directorate in the preparation, transposition, and application of the golden rule and its impact on the elaboration of fiscal legislation in France’, La règle d’or des finances publiques en Europe: son impact dans les systèmes budgétaires nationaux, Europe’s Golden Rule of Public Finances: its impact on national budget systems, Acts of the International Symposium, 27–28 March 2014, Lille, 69. 43 EC, Report from the Commission presented under Article 8 of the TSCG in the EMU, C(2017) 1201 final, 22 February 2017.

294  Laetitia Guilloud-Colliat, Fabien Terpan Commission pointed at three elements confirming the adequacy of the French implementation. These elements were (1) ‘the formal commitment provided by national authorities to interpret the organic law consistently with Article 3(2) of the TSCG together with the compliant set-up of the monitoring institution’, (2) ‘the clarifications provided by national authorities on the substance of the correction mechanism’, and (3) ‘the formal commitment provided by national authorities to apply the comply-or-explain principle in line with the common principles’.

iii.  ESM Treaty The French government submitted observations in the Pringle case,44 with a view to defend the compatibility of domestic law with EU law.45 Yet, unlike the TSCG, the Treaty establishing SM has not been referred for a constitutional review by the Constitutional Council. According to Article 61 of the Constitution, Acts of Parliament may be referred to the Constitutional Council, before their promulgation, by the President of the Republic, the Prime Minister, the President of the National Assembly, the President of the Senate, sixty Members of the National Assembly or sixty Senators.

Some senators from several left-wing parties (Left Front, Communist Party, Left Party) attempted to refer to the Constitutional Council but failed to attain the required threshold. During parliamentary debates in both Houses,46 these senators depicted the ESM Treaty as an attempt to go one step further in the legalisation of austerity policies and an attack on people’s sovereignty. More specifically, they challenged the Article 136 TFEU amendment and considered the use of Article 48(6) TEU (simplified revision procedure) as illegal, because the Commission, the European Central Bank and the CJEU were all involved in the Stability Mechanism, and as a result, the EU’s competences were enlarged. Hence, the ordinary revision procedure should have been used, including an intergovernmental conference and, possibly, a referendum. More generally, as the ESM Treaty enlarged the EU’s competences, it prejudiced the sovereignty of the EU Member States.

B.  Obstacles to the (Further) Transfer of Powers in the Field of EMU Through Treaty Amendments and Limits to European Integration Outside the EU Legal Order Treaties that further EMU integration are among those, which need to be approved by the parliament according to Article 53 of the Constitution: Peace Treaties, Trade agreements, treaties or agreements relating to international organization, those committing the finances of the State, those modifying provisions which are the preserve of statute law, those relating to the status of persons, and those involving the ceding, exchanging or acquiring of territory, may be ratified or approved only by an Act of Parliament.

44 Judgment of the Court of Justice of the European Union (Full Court), 27 November 2012, C-370/12, Thomas Pringle v Government of Ireland and Others. 45 Géraud Sajust de Bergues, ‘L’UEM devant la Cour de Justice de l’Union européenne: La position française dans l’affaire Pringle’, in S De la Rosa, F Martucci and E Dubout, L’Union européenne et le fédéralisme économique, Discours et réalités (Bruxelles, Bruylant, 2015). 46 www.assemblee-nationale.fr/13/cri/2011-2012/20120133.asp.

France  295 When these Treaties ‘contain a clause contrary to the Constitution, challenge the rights and liberties guaranteed by the Constitution or affect the essential conditions of the exercise of national sovereignty’ (see decision n°2012-653 DC §10), under Article 54 of the Constitution ‘authorisation to ratify or approve the international undertaking involved may be given only after amending the Constitutions’. The procedure for constitutional amendment is fixed by Article 89 of the Constitution: The President of the Republic, on the recommendation of the Prime Minister, and Members of Parliament alike shall have the right to initiate amendments to the Constitution. A Government or a Private Member’s Bill to amend the Constitution must be considered within the time limits set down in the third paragraph of article 42 and be passed by the two Houses in identical terms. The amendment shall take effect after approval by referendum. However, a Government Bill to amend the Constitution shall not be submitted to referendum where the President of the Republic decides to submit it to Parliament convened in Congress; the Government Bill to amend the Constitution shall then be approved only if it is passed by a three-fifths majority of the votes cast. The Bureau of the Congress shall be that of the National Assembly.

Any limits that apply to European Treaties or Treaty amendments would also apply to European integration through European treaties outside the EU legal order as well as other treaties.

C.  Constitutional Feasibility Study of EMU Reform Proposals According to Protocol n°1 on the role of national parliaments in the EU, ‘draft legislative acts sent to the European Parliament and to the Council shall be forwarded to national Parliaments’. This includes ‘proposals from the Commission’ in the field of EMU. Article 88-4 of the Constitution reflects this obligation. It is, thus, fully possible to analyse how EMU reform proposals are received by the French parliament. However, parliamentary debates are more political than legal, and of little help in assessing whether constitutional obstacles could hinder the adoption of these proposals.

i.  Rules to Enhance Fiscal Discipline and Structural Reforms a)  Directive on Laying Down Provisions for Strengthening Fiscal Responsibility and the Medium-Term Budgetary Orientation in the Member States The Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the EU Member States aims to incorporate the rules of TSCG into EU law.47 In France, and from a legal point of view, it could be potentially problematic for the same reasons as the ones stated by the Constitutional Council in its decision n°2012-653 DC. First, this goes against parliament and government’s prerogatives in adopting budget laws. Moreover, it is potentially contradictory to the annuality principle, which refers to the development of the budget for a period limited to one year, in order for the parliament to exercise effective control. However, due to the ratification of the TSCG, as well as the adoption of both the organic law and public finance programming laws, those rules have already entered the French legal order. Moreover, as said above, in most cases, the Constitutional Council does not

47 EC, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States (2017).

296  Laetitia Guilloud-Colliat, Fabien Terpan review the compatibility of secondary EU law with the Constitution. Hence, this draft directive does not raise real constitutional concern. b)  Commission’s Legislative Proposal on New Common Provisions for the European Structural and Cohesion Funds This proposal would amend the Council and Parliament 2013 Regulation on European Structural and Investment (ESI) Funds.48 More specifically, it aims to support reforms which can contribute most to the resilience of domestic economies and have positive spill-over effects on other Member States. These include reforms in product and labour markets, tax reforms, the development of capital markets, reforms to improve the business environment as well as investment in human capital and public administration reforms.

For that purpose, the Commission intends to test the main reform delivery tool in 2018–2020, during a pilot phase where the EU Member States will have the opportunity to use all or part of the performance reserve in the current ESI funds to support economic reforms instead of specific projects. Then, under the post-2020 Multiannual Financial Framework, the Commission will propose a new reform delivery tool for Member States who have agreed to ‘reform commitments’ at EU level. These proposals have not raised any legal issues in France, neither on the decision-making of structural reforms nor on national discretion in defining economic policies. As the Senate pointed out during the review process of the proposals under Article 88-4 of the Constitution, ‘recourse to the new reform delivery tool remains optional’.49 The Commission’s proposal was also supported by the European Affairs Committee of the French National Assembly, in an information report adopted on 17 May 2018 in which the rapporteurs ‘welcome the fact that the Commission reinforces … the importance of convergence within the European Union, and support the action of the European Commission as well as the proposal of a new reform delivery tool’.50

ii.  European Monetary Fund The Commission proposes to replace the intergovernmental ESM with a European Monetary Fund (EMF) and thereby incorporate it into EU law.51 According to Article 2 of the Proposal for a Council Regulation on the establishment of the EMF, ‘The EMF shall succeed to and replace the European Stability Mechanism, including its legal position and assuming all its rights and obligations’. The legal basis of this draft regulation is Article 352 TFEU, which has not raised legal concerns in France. Yet, in a resolution on governance in the eurozone adopted on 23 June 2018, the National Assembly pointed to the fact that ‘the Commission’s proposal is not consensual’ and considered that ‘the strengthening of the European Stability Mechanism could be done by a revision of the [ESM] treaty’.52 48 EC, ‘Proposal for a Regulation amending Regulation (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006’ COM (2017) 826. 49 https://www.senat.fr/ue/pac/EUR000003748.html 50 Rapport d’information n°969 déposé par la Commission des affaires européennes de l’Assemblée nationale sur la gouvernance de la zone euro, 17 mai 2018, p 35. 51 EC COM (2017)827 Proposal for a Council Regulation on the establishment of the EMF (2017). 52 Résolution européenne relative à la gouvernance de la zone euro adoptée le 23 juin 2018, Texte Adopté n°142.

France  297 As for the decision-making rules, the Commission explains in its proposal that, The categories of voting rules enshrined in the ESM Treaty will remain the same in the EMF. Four types of voting rules should be distinguished: (i) unanimity; (ii) reinforced qualified majority (85 per cent), (iii) qualified majority (80 per cent), and (iv) a simple majority. Similar to the rules of the ESM Treaty, unanimity has been kept for decisions having a major direct financial impact on Member States (e.g. decisions on the lending capacity, on capital calls not urgently needed). However, decisions related to granting financial support or disbursements to EMF Members were moved from mutual agreement to a reinforced qualified majority (85 per cent).

During the parliamentary review of the proposal, the Senate specified that a reinforced qualified majority should apply to decisions on disbursements or stability support ‘if an emergency situation occurs’.53 It is doubtful whether such an enlargement of qualified majority voting in this field could be seen as threatening the essential conditions of the exercise of French national sovereignty. In any case, the voting right in the Board of Governors taking the main decisions is conditional upon the subscription of the Member State’s contribution to the authorised capital stock. The proposal establishes a 15 per cent blocking minority, and according to table 1 annexed to the Proposal for a Council Regulation on the establishment of the EMF: Germany (26,9616 per cent), France (20,2471 per cent) and Italy (17,7917 per cent) reach the blocking threshold. Thus, France, as with other large Member States, would legally have a veto power to block such decision. This provision, as well as other provisions (eg, parliamentary involvement in EMF activities which impact on the national budget) of the draft regulation creating the EMF, are not likely to seriously jeopardise budgetary sovereignty and raise legal concerns.

iii.  Macroeconomic Stabilisation Mechanism for Asymmetric Economic Shocks The Communication of the Commission on ‘New budgetary instruments for a stable euro area within the union framework’ intends to increase the centralisation of the EU’s budgetary capacity, so that the EU can play a major role in macroeconomic stabilisation.54 The main proposals in the Communication concentrate on (1) providing financial and technical support to the structural measures taken by the Member States, (2) setting up a dedicated convergence facility for the Member States on their way to joining the euro, (3) a backstop for the Banking Union, and (4) a stabilisation function that could provide quick support and help to maintain national investment levels in the event of large asymmetric shocks, typically by filling the financing gap of pre-existing pipelines of projects and/or supporting skills upgrading. France is clearly among the EU Member States that support the Commission’s initiatives. The stabilisation mechanism is an important subject as French authorities – and Emmanuel Macron more specifically in his speech at the Sorbonne – have constantly advocated the idea of a budget for the eurozone.55 This mechanism, which can be seen as an embryonic eurozone budget, was discussed during the examination of the finance act for 2018 by the French parliament. The legal effects on French law were not mentioned. The debates rather focused on the impact at EU level (‘Whether it be a real budget for the Eurozone or a budget line within the EU budget, the creation 53 www.senat.fr/ue/pac/EUR000003749.html. 54 EC, ‘Communication on new budgetary instruments for a stable euro area within the Union framework’, COM (2017) 822. 55 Emmanuel Macron, Speech on new initiative for Europe, 26 September 2017: ‘We need convergence and stability through national reforms, but also by coordinating our economic policies and a common budget’. www.elysee.fr/ emmanuel-macron/2017/09/26/president-macron-gives-speech-on-new-initiative-for-europe.en.

298  Laetitia Guilloud-Colliat, Fabien Terpan of such an instrument will require new resources as well as an ad hoc governance’).56 Both the French government and parliament are strong supporters of a mechanism, which is seen as the first step towards a more ambitious budget.

iv.  European Minister of Economy and Finance According to the Commission’s Communication, the European Minister of Economy and Finance (EMEF) would act as the Commissioner for economic and financial affairs as well as the president of the Eurogroup.57 According to the communication, her/his possible key functions would be (1) pursuing the general interest of the EU and eurozone economy and representing it at global level, (2) strengthening policy coordination and overseeing economic, fiscal and financial rules, (3) Pronouncing on the adequate fiscal policy for the eurozone in support of the monetary policy of the European Central Bank, and (4) overseeing the use of EU and eurozone budgetary instruments including instruments in support of reforms, macroeconomic stabilisation and convergence. These proposals have not triggered any constitutional concerns in France. To the contrary, they received strong political support. The EMEF is an idea that Emmanuel Macron supported even before his election as president, when he was minister of Economy and Finance.58 During the review of the Commission’s proposals, the parliament also strongly supported the idea.59 However, an EMEF with a veto power on the Member States’ budget in case of non-compliance with relevant rules or policy-recommendations would be unconstitutional in France. This is because it would affect the parliament and government’s prerogatives in adopting budget laws. This means that an amendment of Articles 34 and 47 of the Constitution would be required (see above decision n°2012-653 DC).

v.  Banking Union Insurance Mechanism The EMF should be used as a common backstop in the event that the resources available in the Single Resolution Fund were insufficient to finance the resolution of the bank(s) concerned. According to the EC, ‘the backstop would be fiscally neutral over time since any funds used would be recovered from the banking sectors in the Member States participating in the Banking Union’.60 Thus, there is no particular constitutional obstacle. Yet, in 2018, French banks were the main contributors to the Single Bank Resolution Fund (according to the Single Resolution Board). Some of them brought an action before the General Court against the ECB Decision of 19 December 2017, in so far as it imposes a deduction from the irrevocable payment commitments subscribed with the Single Resolution Fund. According to the applicants, the contested decision is vitiated by an error of law in that the ECB made an interpretation contrary to the legislative intent of the EU legislation authorising credit institutions to use irrevocable payment 56 Patrice Joly, Rapport sur la participation de la France au budget de l’Union européenne (Art 27), examen par la Commission des finances le 24 octobre 2018. 57 EC, ‘Communication on a European Minister of Economy and Finance’ COM (2017) 823. 58 Leo Klimm and Christian Wernicke, ‘Refondons l’Europe, Entretien avec Emmanuel Macron’, Süddeutsche Zeitung, 31 August 2015; Ferdinando Giugliano, Sarah Gordon, ‘Macron calls for radical reform to save euro’, Financial Times, 24 September 2015: ‘The French minister said he would like member states to set up a common eurozone treasury with a single finance minister. Member States would contribute part of their VAT tax receipts and unemployment insurance to fund transfers, with a eurozone parliament acting as a political check’. 59 Assemblée nationale, Rapport d’information n° 1453 déposé par la Commission des affaires étrangères sur l’avenir de la zone euro, 29 novembre 2018. 60 EC, ‘Proposal for a Council Regulation on the establishment of the EMF’ COM (2017) 827.

France  299 commitments in order to fulfil part of their obligations vis-à-vis the national resolution funds, the Single Resolution Fund and the national deposit guarantee schemes, thus rendering the relevant provisions ineffective.61

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law A.  Country-Specific Modes of Participation of the National Parliament and Government in EMU Decision-Making The executive power in France under the Constitution of the Fifth Republic is dual and hierarchical, with the presidential function superseding the function of the prime minister. As far as the EMU is concerned, the president plays the most important role, through the adoption and revision of treaties, as well as participation in the European Council. President Mitterrand was central in establishing the EMU rules in the Maastricht Treaty. Including Germany in the eurozone was a top priority. By way of compromise, the French president accepted the independence of both the European Central Bank and the French one, although it went against the French tradition. Later on, President Sarkozy contributed to the reform of the EMU. In the early years of the economic and financial crisis, France insisted on financial solidarity and the necessity of establishing an ‘economic government’,62 while the German government argued that only austerity mechanisms would allow the eurozone crisis to be solved.63 Yet the French position became closer to the German preferences during the negotiations on the reform of economic governance.64 An informal meeting between Angela Merkel and Nicolas Sarkozy in Deauville on 18 October 2010,65 resulted in a package deal. That deal included (1) a revision of the decision-making aimed at facilitating the adoption of sanctions in the correcting phase of the EDP (reversed qualified majority voting) – but no automatic sanctions, and (2) financial solidarity through the conversion of the temporary European Financial Stability Facility into a permanent ESM – but no bail-outs for the weakest countries. Similarly, France accepted the German proposal to introduce the ‘golden rule’ into national law during the negotiation of the Fiscal Compact in 2012. Along the lines defined by the president, the prime minister, together with the minister of Economy and Finance and the minister of Foreign Affairs, have contributed to the adoption of the secondary legislation on the EMU (2005 reform, Six Pack and Two Pack). According to Article 20 of the Constitution, the government ‘determines and conducts the policy of the nation’, which includes decisions at EU level. The prime minister, ‘directing the action of the government’ 61 Action brought on 1 March 2018, BNP Paribas v ECB, Case T-150/18. 62 French officials have pushed the idea of an ‘economic government’ since the declaration by Pierre Bérogovoy in the early 1990s, in which he argued in favour of broad orientations of the ECOFIN in both monetary and economic policy (David J Howarth, ‘Making and breaking the rules: French policy on EU “gouvernement économique”’ (2007) 14 Journal of European Public Policy, 7, 1067). Nicolas Sarkozy reiterated this position in a statement made at the European Parliament on 21 October 2008 (Nicolas Jabko and Elsa Massoc, ‘French capitalism under stress: How Nicolas Sarkozy rescued the banks’ (2012) 19 (4) Review of International Political Economy, 562; Ben Clift and Magnus Ryner ‘Joined at the hip, but pulling apart? Franco-German relations, the Eurozone crisis and the politics of austerity’ (2014) 12(2) French Politics, 136. 63 Simon Bulmer, ‘Germany and the Eurozone Crisis: Between Hegemony and Domestic Politics’ (2014) 37(6) West European Politics, 1244. 64 Sabine Saurugger and Fabien Terpan, ‘Do crises lead to the policy change? The Multiple-streams framework and the EU’s economic governance instruments’ (2016) 49(1) Policy Sciences, 35. 65 Charles Forelle et al, ‘As Ireland Fails, Europe Lurches Across the Rubicon’, The Wall Street Journal, 27 December 2010.

300  Laetitia Guilloud-Colliat, Fabien Terpan under Article 21 of the Constitution, coordinates the French position in the Council. Yet, the prime minister and the government have no real leeway. Apart from periods of ‘cohabitation’ (the two branches of the executive power come from opposite political parties), they cannot deviate from what the president has decided. According to Article 88-4 of the Constitution, The government shall lay before the National Assembly and the Senate drafts of European legislative acts as well as other drafts of or proposals for acts of the European Union as soon as they have been transmitted to the Council of the European Union. In the manner laid down by the rules of procedure of each House, European resolutions may be passed, even if Parliament is not in session, on the drafts or proposals referred to in the preceding paragraph, as well as on any document issuing from a European Union Institution …’

In France, both parliamentary assemblies include a committee in charge of European affairs. These committees contribute to the elaboration of European resolutions and the study of draft EU acts mentioned in Article 88-4 of the Constitution. Several resolutions have been adopted by each assembly on EMU matters. More specifically, the National Assembly has passed resolutions on Europe and the European financial crisis (20 December 2008), the democratic foundations of the European economic governance (27 November 2012), European orientation of economic policy (15 March 2013), the strengthening of EMU (11 August 2013), progress of the Banking Union and the economic integration in the EMU (30 January 2014), the sovereign debt of the eurozone members (n°512, 7 May 2015), and the governance of the eurozone (3 January 2016). These resolutions, such as those adopted by the Senate, have only limited legal significance. The Constitutional Council recalled, the voting by each House of a resolution on EU proposals shall neither affect the constitutional prerogatives of the government, nor shall it question its responsibility, which derives from the rules contained in articles 49 and 50 of the Constitution.66

In other words, the French government is not bound by the resolutions adopted by the legislative assemblies. Moreover, parliamentary reservation is not mentioned in the Constitution, but only in a ministerial circular dated 20 June 2010 relating to the involvement of the parliament in the European decision-making process. That reservation grants to both assemblies the right to comment on a proposal before its adoption by the Council. Under the terms of this circular, the government must give parliament eight weeks to review the proposal for a legislative act and four weeks in the case of a non-legislative act. As an exception to this rule, the government can trigger an emergency examination procedure whereby the president of the committee in charge of European affairs can pronounce without a prior meeting of the committee. In any case, the position of the committee does not bind the government.

B.  Country-Specific Techniques of Implementing Secondary Legislation, Especially of Directives The CoS has long ruled that the implementation of European regulations and decisions was the responsibility of the government.67 Indeed, Article 21 of the Constitution states that ‘The Prime 66 Decision n°92-314 DC. 17 December 1992. 67 Opinion, 20 May 1964. Quoted by Jean-Claude Gautron, ‘L’influence des Communautés européennes sur les structures du pouvoir politique français depuis 1958’, in Mélanges offerts à Georges Burdeau, Le Pouvoir (Paris, LGDJ, 1977) 430.

France  301 Minister … shall ensure the implementation of legislation’, which includes legislation coming from the EU. Regarding the transposition of directives, a distinction is made in Articles 34 and 37 of the Constitution. The former determines the ‘realm of law’ by stating that policy matters covered by this article can only be addressed in a statute. This applies to directives falling within the same policy matters. In practice, many directives are implemented through delegated legislation (ordinance), as provided for under Article 38 of the Constitution the Government may ask Parliament for authorization, for a limited period, to take measures by Ordinance that are normally the preserve of statute law. Ordinances shall be issued in the Council of Ministers, after consultation with the Council of State. They shall come into force upon publication, but shall lapse in the event of failure to table before Parliament the Bill to ratify them by the date set by the Enabling Act. They may only be ratified in explicit terms. At the end of the period referred to in the first paragraph hereinabove Ordinances may be amended solely by an Act of Parliament in those areas governed by statute law.

In practice, compliance with EMU secondary legislation implies a combination of Statute Acts and Regulations. For example, Directive 2011-85 of 8 November 2011, as part of the Six Pack, has been transposed through a series of different acts: Finance Law for 2012 n° 2011-1977 of 28 December 2011 (Art 108); decree n° 2012-1246 of 7 November 2012 on public budgetary and accounting management; decree n°2012-1247 of 7 November 2012 adapting different texts to new rules on public budgetary and accounting management; institutional law (‘loi organique’) n°2012-1403 of 17 December 2012 related to the programming and the governance of public spending (Arts 1–5, 7, and 11–23); law n°2012-1558 of 31 December 2012 on the programming of public spending for the years 2012–17 (Arts 2–15 and 19). The transposition and implementation of EMU legislation have not been problematic in France, due to the fact that the executive power could rely on a strong political majority in the parliament, and especially in the National Assembly, which is the more powerful of the two Houses. In fact, one must clearly distinguish between two things. On the one hand, there is the active French support for the new EMU rules at the EU level and the smooth process of implementation/transposition of these rules at a domestic level. On the other hand, however, is the poor French compliance with the adopted rules. If EMU rules have created legal issues, it is not because the French government and parliament rejected them, but because they did not succeed in complying with the EMU obligations. It is only on 22 June 2018 that the Council closed the excessive deficit procedure for France, confirming that it has reduced its deficit below the EU’s 3 per cent of GDP reference value. This remains quite fragile, however, as President Macron and his government responded to the ‘yellow vests’ crisis started in October 2018 with a new increase in budget spending.

C.  Enforcement Through the Courts In France, courts are not supposed to review whether secondary EU law is compatible with the Constitution or is ultra vires. However, a review of secondary EU law is not entirely impossible in the case of directives. In a Decision of 27 July 2006, the Constitutional Council stated that directives should be implemented except when they are contrary to the ‘constitutional identity’ of France.68 The notion of ‘constitutional identity’ remains quite unclear, which makes it difficult to know whether or not it can be applied in the field of the EMU. 68 Décision n° 2006-540 DC du 27 juillet 2006, Loi relative au droit d’auteur et aux droits voisins dans la société de l’information.

302  Laetitia Guilloud-Colliat, Fabien Terpan The Constitutional Council has considered that the transposition of directives is a ‘constitutional requirement’.69 The constitutional court ensures that the transposition law complies with the directive but cannot verify the compatibility of the entire French legislation with the directive. The administrative courts sanction breaches of primary and secondary EU law by administrative authorities. The French state is answerable for any harm arising from violations of EU law, even when the latter are committed by the parliament adopting a statute contrary to EU law70 or by administrative courts.71

V.  Resulting Relationship between EMU Related Law and National Law Two main characteristics of the French constitutional system explain the type of relationship established between EMU related law and domestic law. First, in France, the constitutional review system has developed quite slowly since the adoption of the 1958 Constitution. The Constitutional Council has strengthened its powers with its decision ‘Freedom of association’ in 1971, which substantially enlarged the constitutionality block. The possibility for the political opposition in the two Houses to refer cases to the Constitutional Council granted in the early 1980s has also contributed to the efficiency of the ex ante control. The latter is complemented since 2008 by the preliminary procedure on constitutionality, whereby the Constitutional Council exercises not only ex-ante but also ex post control of the legislation. However, the constitutionality review is neither systematic (the ESM was not reviewed) nor ultra vires. Although the French Constitutional Council issued important decisions on EU law, it has not opposed EU integration in the same way the German Constitutional Court did. A second characteristic of the French system is that very few economic rules and principles have been constitutionalised. Thus, the Constitutional Council controls whether national sovereignty was not endangered by EMU related law, in terms of competences and institutional powers, but does not decide on matters of substance. It follows that EMU related law has created rather limited constitutional problems in France. Decision n°92-308 of the Constitutional Council (9 April 1992) on the Maastricht Treaty indicated which constitutional amendments were necessary to make the participation of France in EMU possible. In the mid-1990s, the SGP was not subject to constitutional review because it was secondary EU law. This was also the case in the early 2010s with the Six Pack and Two Pack legislation. In the context of the economic and financial crisis, the French authorities tried to constitutionalise budgetary constraints. However, the draft constitutional law on the balance of public finances (2011) did not gain sufficient support in the parliament to amend the Constitution. Later on, the TSCG was ratified by the two Houses after a conciliatory decision of the Constitutional Council, and the ESM Treaty ratified without any prior constitutional control. Constitutional issues were raised by a limited number of representatives. However, the political majority in the two Houses was supported by the opposition when the treaties were presented for ratification. While the SGP was immune from constitutional control, the EMU treaty-based rules triggered a vigorous political debate that did not, however, turn into a serious legal/constitutional one. Future EMU reforms should not be problematic from a constitutional perspective, as they do not create new legal problems. The French government strongly supports them at the EU

69 Decision 70 CE

n°2004-496 DC 10 June 2004. Ass, 8 February 2007, Gardedieu, req n°279522. 18 June 2008, Gestas, req n°295831.

71 CE,

France  303 level and should make all necessary efforts to ease their adoption and smooth implementation. This does not mean that France is performing well in terms of compliance with EMU rules. To the contrary, France has had difficulties in meeting the budgetary requirements imposed by the Commission on the basis of the treaties and secondary EU law. The French government contributed to relaxing the SGP rules in 2005. However, since then the French Constitution has not been used as an instrument to oppose obligations deriving from the EMU, even when France was under an excessive deficit procedure. The active French support to the new EMU rules at the EU level and the French willingness to avoid any constitutional issues at the national level contrasts with the poor performance of France in terms of budgetary discipline.

References J Bell, ‘French Constitutional Council and European Law’ (2005), 54(3) The International and Comparative Law Quarterly, 735–43. J-Cl Bonichot, ‘Le juge constitutionnel français et la “règle d’or”: reviser ou ne pas reviser la constitution? That was the question’ in V Kronenberger et al, De Rome à Lisbonne Mélanges en l’honneur de P Mengozzi (Bruxelles, Bruylant, 2013) 855. R Bouchez, ‘The perspective of the French Council of State’ in La règle d’or des finances publiques en Europe: son impact dans les systèmes budgetaires nationaux, Europe’s Golden Rule of Public Finances: its impact on national budget systems, Acts of the International Symposium, 27–28 March 2014, Lille, 73. S Bulmer, ‘Germany and the Eurozone Crisis: Between Hegemony and Domestic Politics’ (2014) 37 (6) West European Politics, 1244. G Carcassonne, ‘Amendments to the French constitution: One surprise after another’ (1999) 22 (4) West European Politics, 76. M Caron, ‘Réflexions sur la constitutionnalisation des politiques économiques conjoncturelles’ (2016) 2 Revue du droit public, 557. B Clift and M Ryner, ‘Joined at the hip, but pulling apart? Franco-German relations, the Eurozone crisis and the politics of austerity’ (2014) 12 (2) French Politics, 136. J Defline, ‘De la constitutionnalisation des normes financières à la constitutionnalisation de théories économiques’ (2018) 4, Revue du droit public, 1129. B du Marais, ‘Constitution économique ou constitutionnalisation de l’économie?’ in F Martucci, and C Mongouachon (eds), La constitution économique, En hommage au Professeur Guy Carcassonne (Paris, Editions La Mémoire du Droit, 2015) 3. European Commission, C(2017) 1201Report from the Commission presented under Article 8 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. F Fines, ‘A propos de quelques limites constitutionnelles au fédéralisme économique européen, Etude comparative des jurisprudences nationales sur les mesures européennes de sauvegarde de la zone Euro’ in S De la Rosa, F Martucci, E Dubout, L’Union européenne et le fédéralisme économique, Discours et réalités (Bruxelles, Bruylant, 2015) 213. Ch Forelle et al., ‘As Ireland Fails, Europe Lurches Across the Rubicon’ (2010) The Wall Street Journal. N Galliffet, ‘L’office du juge constitutionnel français et le traité sur la stabilité, la coordination et la gouvernance au sein de l’Union économique et monétaire’ (2015) 132, Revue française de finances publiques, 267. F Giugliano, S Gordon, ‘Macron calls for radical reform to save euro’, Financial Times, 24 September 2015. D J Howarth, ‘Making and breaking the rules: French policy on EU “gouvernement économique”’ (2007) 14 (7) Journal of European Public Policy, 1067. N Jabko, E Massoc, ‘French capitalism under stress: How Nicolas Sarkozy rescued the banks’ (2012) 19 (4) Review of International Political Economy, 562. M Kamal, L Perez, ‘La liberté d’entreprendre à la lumière de la question prioritaire de constitutionnalité’ (2012) 31, Revue Lamy de la Concurrence, 49. L Klimm, Ch Wernicke, ‘Refondons l’Europe, Entretien avec Emmanuel Macron’, Süddeutsche Zeitung, 31 August 2015. A Levade, ‘TSCG et Constitution française: quand l’interprétation fait la comptabilité!’ (2012) 4 Constitutions, 854.

304  Laetitia Guilloud-Colliat, Fabien Terpan X Magnon, Un traité international de mise en oeuvre du droit de l’Union européenne devant le Conseil constitutionnel: la ratification du traité sur la stabilité, la coordination et la gouvernance dans l’Union économique et monétaire (2012) 92 Revue française de droit constitutionnel, 854. S Mantel, ‘The role of France’s Budget Directorate in the preparation, transposition, and application of the golden rule and its impact on the elaboration of fiscal legislation in France’, La règle d’or des finances publiques en Europe: son impact dans les systèmes budgétaires nationaux, Europe’s Golden Rule of Public Finances: its impact on national budget systems, Acts of the International Symposium, 27–28 March 2014, Lille, 69. E Oliva, ‘La decision du Conseil constitutionnel du 9 août 2012’ (2012) 6 Revue Française de Droit Administratif, 1043. P Oliver, ‘The French Constitution and the Treaty of Maastricht’ (1994) 43(1) The International and Comparative Law Quarterly, 1. S Pierré-Caps, ‘Le conseil constitutionnel et la stabilité économico-financière’ (2013) 30, Civitas Europa, 145. H Rabault, ‘La Constitution économique de la France’ (2000) Revue Française de Droit Constitutionnel, 707. H Roussillon, ‘Le Conseil constitutionnel: une légitimité contestée’ in J Raibaut and J Krynen (eds), La légitimité des juges (Presses de l’Université Toulouse Capitole, LGDJ – Lextenso éditions, 2004) 126. J Roux, ‘Le Conseil Constitutionnel et le Traité sur la stabilité, la coordination et la gouvernance au sein de l’Union économique et monétaire’ (2012) 4, Revue Trimestrielle de Droit Européen, 855. G Sajust de Bergues, ‘L’UEM devant la Cour de Justice de l’Union européenne: La position française dans l’affaire Pringle’, in S De la Rosa, F Martucci, E Dubout, L’Union européenne et le fédéralisme économique, Discours et réalités (Bruxelles, Bruylant, 2015). S Saurugger and F Terpan, ‘Do crisis lead to the policy change? The Multiple-streams framework and the EU’s economic governance instruments’ (2016) 49(1) Policy Sciences, 35. A Sée, ‘La question prioritaire de constitutionnalité et les libertés économiques’ (avril 2014) 718, Revue Juridique de l’Economie Publique, 1. M Ch Steckel, Le Conseil constitutionnel et l’alternance (Paris, LGDJ, 2002). P Terneyre, La constitutionnalisation du droit économique, Association française de droit constitutionnel, 1958-2008, 50e anniversaire de la Constitution française (Paris, Dalloz, 2008) 427. F Terpan, ‘La gouvernance économique de l’Union européenne: une juridicisation en trompe-l’oeil?’ in M Vellano (ed), L’avenir des organisations internationales. Perspectives juridiques – Il futuro delle organizzazioni internazionali. Prospettive giuridiche (Napoli, Editoriale Scientifica, 2015) 443. F Terpan, ‘Soft Law in the European Union – The Changing Nature of EU Law’ (2015) 21 European Law Journal, 68.

12 Croatia TAMARA ĆAPETA, IRIS GOLDNER LANG

Abstract: This contribution aims to explain the Croatian constitutional setup and elaborate on the possible Constitution-based obstacles to furthering economic and monetary integration in the EU, with specific emphasis on the role of the Constitutional Court (CC). Croatia is the newest EU Member State and has still not joined the eurozone but retains the status of a Member State with a derogation. However, becoming part of the eurozone is one of its policy priorities. Procedurally, Constitution-based limits to Croatia’s further economic integration in the EU flow from the need for a two-thirds parliamentary majority to uphold any new transfer of powers to EU institutions. This might be coupled with a referendum, which is not mandated by the Constitution but exists as an option. Substantively, the Constitution does not impose any specific limits to further economic or fiscal integration. However, the Croatian CC has started to develop the concept of ‘constitutional identity’, which might prove to impose certain limits on the transfer of budgetary powers. However, the CC is procedurally powerless to stop Treaty amendments agreed upon by the government and approved by parliament, and also cannot stop Croatia’s ratification of international agreements in the area of economic and financial integration, as it lacks the power of either prior or posterior control of the constitutionality of international treaties. Thus, the concept of ‘constitutional identity’, even if understood by the CC as preventing the transfer of fiscal and economic powers (or some parts of them), can only influence Treaty amendments or intergovernmental agreements indirectly, if political institutions feel prevented by this concept from agreeing to the further economic and fiscal empowerment of the EU. The CC has also announced its unwillingness to accept the supremacy of EU law unconditionally by announcing the supremacy of the Constitution. Even though this doctrine is only at its early stages and is far from being fully elaborated, it might allow for the constitutional review of EU secondary law. Even if it is likely that such a review will be limited, the control of the compatibility of EU measures with ‘constitutional identity’ might be expected. This could open the way for the CC to become involved in the elaboration of EMU choices in the future. It is probable that, in elaborating its doctrine, the Croatian CC will pay attention to the positions adopted by other CCs in the EU Member States. Key words: EMU, EU fiscal integration, constitutional identity, constitutional limits to EU integration, constitutional review, Croatian Constitutional Court.

306  Tamara Ćapeta, Iris Goldner Lang

I. Introduction Croatia is the youngest EU Member State. It acceded to the EU on 1 July 2013.1 Its accession was preceded by lengthy and complicated accession negotiations, which were launched on 3 October 2005 and closed on 30 June 2011. The Accession Treaty was signed five months later on 9 October 2011, following a positive outcome of a referendum,2 which was preceded by a constitutional amendment of the referendum rules aimed at ensuring this result.3 The fact that Croatia is a newcomer in the EU determines, to a large degree, its constitutional set up for the EU. On the one hand, on the formal side, the Croatian Constitution4 recognises the EU, devoting an entire chapter to the country’s EU membership.5 On the other hand, on the substantive side, the constitutional case law, interpreting the pertinent constitutional provisions, is still almost non-existent. Due to its recent accession to the EU, Croatia is a newcomer in its participation in EU economic governance. However, due to the severity of the economic crisis, Croatia entered the corrective arm of the SGP. Excessive macroeconomic imbalances were diagnosed soon after its accession, which forced Croatian authorities to learn about EU economic governance fast and immediately. The country is not yet a member of the eurozone and classified as a ‘Member State with a derogation’,6 as it has not fulfilled conditions for the adoption of the euro.7 However, joining the eurozone, as well as joining Schengen, have been proclaimed as top priorities of the Croatian government.8 As a consequence of its late accession, Croatia did not participate in the discussions and creation of measures aimed at stabilising the eurozone.9 Five years after its accession to the EU, Croatia joined the TSCG on 7 March 2018, but, according to its Article 14(5), decided not to be bound by Titles III and IV of the Treaty.10 The EU legislation and measures aimed specifically at eurozone Member States (such as the Two Pack) do not apply to Croatia due to its status as a Member State with a derogation. However, other SGP rules, applicable to the non-eurozone Member States, equally apply to Croatia. Due to Croatia’s status as a non-eurozone Member State, there was no political or academic debate

1 The Treaty between the Member States of the EU and the Republic of Croatia concerning the accession of the Republic of Croatia to the EU, containing the Act on the Conditions of Accession and relevant documents were published in OJ L 112 on 24 April 2012. 2 The Referendum on EU membership took place on 22 January 2012. 43.51% of Croatian voters participated in the referendum of whom 66.27% approved Croatia’s future EU membership. 3 On the change of referendum rules, based on the 2010 constitutional amendment, see Section II.A.1. For more on the 2010 Constitution amendments, see Branko Smerdel, ‘Ustav RH nakon ustavnih promjena 2010. Godine’, Hrvatska pravna revija 10 (2010) 1. 4 The text of the Constitution is accessible in English at www.sabor.hr/sites/default/files/uploads/inline-files/ CONSTITUTION_CROATIA.pdf. (This is the consolidated version after the 2010 amendments. The 2013 amendments, on the inclusion of the definition of marriage as a union between a woman and a man, are not contained therein. However, this does not influence the content and the numbering of the Constitutional provisions referred to in this text). 5 Ch VIII consisting of four Arts. 6 Art 5 of the Act on Conditions of Accession (n 1). 7 Art 139(1) TFEU. 8 ‘Government priorities are the entry into the eurozone and Schengen, the euro will positively affect our economy’, News on the speech by the Croatian Prime Minister Andrej Plenković at the ELSA conference in Opatija, posted on the website of the Croatian government, 15 November 2018, available at www.vlada.gov.hr/vijesti/prioriteti-vladesu-ulazak-u-eurozonu-i-schengen-euro-ce-pozitivno-djelovati-na-nase-gospodarstvo/24732. 9 The only instances of Croatian passive participation in the discussions which took place prior to its accession were when Croatia had observer status in EU institutions. 10 Odluka o proglašenju Zakona o potvrđivanju Ugovora o stabilnosti, koordinaciji i upravljanju u ekonomskoj i monetarnoj uniji (Decision on the Enactment of the Law on Approval of the TSCG in the EMU), NN 1/2018. Available at: www. narodne-novine.nn.hr/clanci/medunarodni/2018_02_1_6.html.

Croatia  307 on the desirability or constitutionality of euro crisis measures in Croatia. The only active discussions in Croatia in relation to EU economic and financial integration have taken place in the context of its future membership in the eurozone and the domestic and EU mechanisms required in the process. The Strategy for the Adoption of the Euro as the Official Currency in Croatia (Eurostrategy), adopted by the Croatian government on 10 May 2018, is the landmark document in this respect.11 However, this document does not discuss the potential constitutional limits to further economic and financial integration.

II.  Main Characteristics of the National Constitutional System and Constitutional Culture12 Croatia is a rather young state that emerged from the break-up of Yugoslavia. Its establishment as a sovereign and independent state dates back to 25 June 1991.13 Croatia adopted its first Constitution on 22 December 1990.14 This Constitution has been amended on several occasions.15 Its most important amendment for the topic of this paper, whose objective was to enable and facilitate EU accession, was agreed in 2010 (the 2010 amendments). Since its first enactment, the Constitution aimed at distinguishing the country from the previous, socialist political regime. Thus, in its opening provision, it defines Croatia as a ‘democratic and social state’, based on the values of liberal democracy. The constitutional text stresses the democratic, pluralistic orientation of the country, based on the rule of law and respect for fundamental rights.16 As with the constitutions of many other democracies newly emerged from socialism, the Croatian Constitution also envisages that the sovereignty of the Republic is ‘inalienable, indivisible and non-transferable’ (Article 2). The same Article explains, however, that this does not mean that Croatia cannot participate in alliances with other states. It must, however, be able to exercise its sovereignty by retaining its sovereign right to decide upon the powers to be delegated and the right to withdraw from alliances with other states. Thus, Article 50 TEU – which was introduced 11 Odluka o donošenju Strategije za uvođenje eura kao službene valute u Republici Hrvatskoj, NN 43/2018, 11 May 2018. Available at: www.narodne-novine.nn.hr/clanci/sluzbeni/2018_05_43_831.html. 12 Given the similarity of the topics, this part of the contributions draws on previous texts written within two different projects. It is presented here in a summarised form, and readers interested in a more detailed elaboration on the topic could consult: Tamara Ćapeta, ‘Croatia’ in Stefan Griller et al (eds), National Constitutions and EU Integration (Oxford, Hart Publishing, 2020 forthcoming); Iris Goldner Lang, Zlata Đurđevic and Mislav Mataija, ‘The Constitution of Croatia in the Perspective of European and Global Governance’ in A Albi and S Bardutzky (eds), National Constitutions in European and Global Governance: Democracy, Rights, the Rule of Law (Den Haag, TMC Asser Press, 2019 forthcoming). The text is part of an ERC project entitled ‘The Role and Future of National Constitutions in the European and Global Governance’. 13 On that occasion, the Croatian parliament adopted the Constitutional Decision on the Sovereignty and Independence of Croatia and the Declaration on the Establishment of the Sovereign and Independent Republic of Croatia. Both documents are published in the ‘Narodne novine’ (NN, Official Gazette of the Republic of Croatia), 31/91. 14 The 1990 Constitution was published in NN 56/90. It is necessary to note that, as one of the federal republics of the SFRY, Croatia already had its own Constitution even before the decision on independence. 15 The first amendment took place in 1997 (NN 135/979, the second one in 2000 (NN 113/2000), the third one in 2001 (NN 28/2001), the fourth in 2010 (NN 76/2010), and the most recent amendment was a result of a controversial referendum on the inclusion of the definition of marriage as a union between a woman and a man into the Constitution and took place in 2013 (NN 5/2014). 16 Art 3 enumerates the highest values of the Croatian constitutional order: ‘freedom, equal rights, national and gender equality, peace-making, social justice, respect for human rights, inviolability of ownership, conservation of nature and the environment, the rule of law and a democratic multiparty system’. Ch III of the Constitution, containing 57 Arts, lists human rights and fundamental freedoms guaranteed in the Croatian legal order.

308  Tamara Ćapeta, Iris Goldner Lang by the Lisbon Treaty in order to confirm the possibility of leaving the EU – made Croatian accession easier. The power is vested in the people and exercised either directly by the people or through elected representatives. Direct exercise of power via referenda was not a practice until recently. According to the Constitution, the organisation of the Croatian government is based on the principle of the separation of powers.17 The three branches named in the Constitution are the legislative, executive and judicial. The Constitution also establishes the CC,18 which is not part of the judiciary, but often referred to as the ‘fourth branch of government’.19 With the constitutional amendments of 2000, the previous semi-presidential system was replaced by a system of parliamentary democracy. The Croatian parliament, called Hrvatski sabor, is a unicameral body.20 As a rule, it adopts statutes by simple majority, provided that at least half of the MPs are present. In some cases, however, the Constitution demands stronger majorities.21 The parliament may delegate to the government its legislative powers, except those for which the Constitution envisages a qualified majority. This enables the government to decide by way of legislative decrees.22 The executive embraces not only the government headed by a prime minister but also the president of the state, who is elected by a direct vote every five years, with the possibility of one renewal of the mandate.23 The Constitution, however, does not confer significant powers on the president.24 The Constitution guarantees the independence of the judiciary. However, it only regulates the role of the Supreme Court,25 whereas the organisation of the rest of the judiciary is left to secondary legislation. The Supreme Court has the role of ensuring the uniform application of the law and equality of all before the law. The Croatian parliament nominates the president of the Supreme Court on the proposal of the president of the Republic for a period of four years. Other judges are appointed, promoted and dismissed by an independent body called the National Judicial Council.26 The tenure of judges lasts until retirement age. The adjudicating culture has undergone significant changes during the last decade. The old, strictly formalistic view of law based on few sources and textual interpretation,27 is gradually 17 Art 4 of the Croatian Constitution. 18 Arts 122–27 of the Croatian Constitution. 19 Duška Šarin, ‘Javna narav i javna kontrola djelovanja Ustavnog suda Republike Hrvatske’ (‘The Public Nature and Control of the Activities of the Croatian Constitutional Court’), (2016) 4 Zbornik radova Pravnog fakulteta u Splitu, 929. 20 This has been so since the constitutional amendments of 2001. Until then, the parliament was bi-cameral, with the other house representing regional communities. 21 The laws regulating the rights of national minorities and laws altering the borders are to be adopted by a two-thirds majority of all MPs whereas laws elaborating human rights and those altering the electoral system require the majority of all MPs. 22 Art 88 of the Croatian Constitution. 23 Art 95 of the Croatian Constitution. 24 The president of the Republic calls parliamentary elections and gives a mandate to one person to establish the government. The president promulgates laws, and if he/she considers a law unconstitutional, he/she may initiate a constitutional review of such a law in front of the CC. However, the president first has to promulgate a law and can only then initiate a constitutional review. He/she represents the country abroad and is commander in chief of the Croatian army. 25 Arts 122–27 of the Croatian Constitution. 26 The National Judicial Council is composed of 11 persons, of whom seven are judges, two are university professors of law and two are members of the parliament, one of whom is a member of the opposition. 27 An excellent description of the legal cultures of new democracies was given by Zdenek Kühn, ‘Worlds Apart Western and Central European Judicial Culture at the Onset of the European Enlargement’ (2004) 52, American Journal of Comparative Law, 531; See also Zdenek Kühn, ‘European Law in the Empires of Mechanical Jurisprudence: The Judicial Application of European Law in Central European Candidate Countries’ (2005) 1, Croatian Yearbook of European Law and Policy, 55; Tamara Ćapeta, ‘Courts, Legal Culture and the Enlargement of the EU’ (2005) 1, Croatian Yearbook of European Law and Policy, 23.

Croatia  309 being replaced by a culture that recognises the importance of interpretation in law and other sources apart from statutes. This was reflected in the constitutional amendments of 2010 in which a new sentence describing the judicial function was introduced. It reads as follows: ‘Courts shall administer justice according to the Constitution, law, international treaties and other valid sources of law’.28 Despite this, the Constitution still does not appear in everyday judicial practice, either as a source of rights or an interpretative tool. This is most likely the result of the inherited legal culture of the previous socialist system, in which the Constitution was not perceived as a normative act, but rather as a broad political programme.29 Even though courts rarely apply the Constitution, its importance becomes more visible in the political process. Political actors often invoke the Constitution and use the CC to check the constitutionality of their decisions or challenge the decisions of other actors.30 In this way, the CC is gaining importance. This was reflected in the 2010 amendments to the Constitution, which increased the parliamentary majority necessary for the nomination of constitutional justices to two-thirds.31 Given that the parliamentary majority rarely wins two-thirds of the seats, the new arrangement requires an agreement between the governing party and the opposition for the appointment of a constitutional judge. The new procedure was tested in 2016 when the parliament appointed ten (out of 13) justices of the CC (some new, some reappointed). Faced with possible blockage of constitutional adjudication, as the mandate of ten judges was to expire, the parliamentary parties reached an agreement and divided the vacant seats at the CC – half for the majority and the other half for the opposition. Even though the politicisation of the selection process was challenged, the political agreement reached on this occasion demonstrates the importance attached to the CC by Croatian political actors. Namely, the possibility for the CC to become dysfunctional was seen as unacceptable and damaging for democracy, which made a political agreement indispensable. The organisation and powers of the CC are regulated by the Constitution and the Constitutional Act on the CC.32 The CC has jurisdiction for both abstract and concrete control of the constitutionality of statutes and by-laws. The review can, in principle, only be initiated after the law enters into force. Abstract review initiated by request submitted by qualified applicants33 creates the obligatory jurisdiction of the CC. However, any natural or legal person may ask the Court to open a procedure for the constitutional review of a law. In such a case, the CC is not bound by the proposal. However, the CC adopted a policy according to which it initiates procedures based on proposals of Croatian citizens and legal persons. Thus, the Constitution allows for a certain form of actio popularis to initiate an abstract constitutional review. This has led to the growing importance of the Constitution and the CC on the Croatian legal and political scene. Concrete control is instituted by a constitutional complaint against an individual decision, most often a final judicial decision, by which the applicant alleges a violation of his/her 28 Art 115 (117) of the Croatian Constitution. 29 Cf Branko Smerdel, ‘Ustav RH nakon ustavnih promjena 2010. Godine’ (Constitution of the Republic of Croatia after constitutional amendments of 2010), (2010) 1, Hrvatska pravna revija, 6. 30 To give a few examples: in 2015, the Croatian parliament asked the CC to determine whether it is constitutional to put questions on outsourcing and to give highways under concession at national referenda. This resulted in decisions U-VIIR-1159/2015, 8 April 2015 and U-VIIR-1158/2015, 21 April 2015, of the CC. In the 2013/2014 presidential campaign, Ivo Josipović, running for a second mandate, stood for constitutional amendments as an argument in his campaign. In 2015, nine trade unions introduced a proposal for the constitutional review of the government’s austerity measures (Decision U-I-1625/2014 and others, U-II-241/2015, U-II-383/2015, U-II-1343/2015, 30 March 2015). 31 Art 126(1) of the Croatian Constitution. 32 Consolidated version published in NN 49/02. 33 Qualified applicants are: a qualified number of members of the parliament; parliamentary committees; the president of the state, the government; courts, when the question of constitutionality arises in a pending dispute; the ombudsman in certain situations (Art 35 of the Constitutional Law on the CC).

310  Tamara Ćapeta, Iris Goldner Lang constitutionally protected human rights. Constitutional complaints represent the majority of the Court’s caseload (more than 60 per cent of cases). In contrast with its vast powers over the constitutionality of domestic laws, the Constitution does not envisage the possibility of the review of international agreements, either before or after their entry into force. The CC has thus far not construed its jurisdiction to assess such conformity on substantive grounds. It has, however, considered itself empowered for the control of the constitutionality of the procedure of the adoption of an international agreement.34 The CC, the institution endowed with the power to interpret the Constitution with authoritative force, is still in search of its understanding of the constitutional order. Sometimes still caught up in formalistic legal interpretive logic, its methods of constitutional adjudication are also strongly influenced by other systems, most notably the German constitutional tradition and the European Convention on Human Rights (ECHR) and its case law.35 The CC is also willing to perform a comparative overview of different European constitutional solutions in search of a proper domestic constitutional standard.36 The CC is thus a court open to external influences, under which it has moved towards more contextual interpretation, embracing certain previously unfamiliar concepts, such as the proportionality review.37 Membership in the EU will certainly influence further the method and understanding of law by the CC. The CC has already developed its case law by understanding the Constitution as a living document. In considering the important place of the German Federal Constitutional Court in CC decisions, it is to be expected that the German doctrine will heavily influence its jurisprudence in relation to constitutional issues resulting from EU membership.

III.  Constitutional Foundations of EMU Membership A.  Constitutional Basis for Economic and Financial Integration At the moment of Croatia’s accession to the EU, the EMU – as envisaged by the Maastricht Treaty, and as implemented in the EU and its Member States’ constitutional practice – was a part of the whole package of becoming an EU Member State. During negotiations, Croatia never contemplated any opt-outs from the monetary union, which it has entered into as ‘a Member State with a derogation’,38 thus, accepting the EMU package from the outset. Therefore, any transfer of sovereignty for the purpose of becoming an EMU member was part of the transfer of sovereignty necessary for becoming an EU Member State. For that reason, the constitutional basis for the transfer of sovereignty necessary for future participation in the euro and EU economic and monetary policy was not separate from the constitutional basis which generally enables the

34 See, for instance, case U-I-2236/2017 of 6 June 2017, in which the CC considered not to have jurisdiction to assess the constitutionality of the Agreement on economic issues signed between Croatia and the Holy See. However, the CC was not unanimous. One judge issued a dissenting opinion. The CC, however, sees itself as having jurisdiction to control the procedural validity of the law by which an international agreement is ratified, eg, whether such law was adopted by an adequate majority in parliament. See, for instance, the decision of the CC of the Republic of Croatia, no: U-I-6446/2010 of 7 July 2010, and U-I-2057/2009 of 30 March 2011. 35 National Report of the CC of the Republic of Croatia based on the Questionnaire for the XVI Congress of the Conference of European Constitutional Courts, 2013. 36 See, for example, Decision U-I-295/2006 et al, 6 July 2011, which examines the right to public gathering. 37 Snježana Bagić, ‘Načelo razmjernosti u praksi europskih sudova i hrvatskog Ustavnog suda’ (The Principle of Proportionality in the Case law of European Courts and the Croatian CC), Pravni fakultet Sveučilišta u Zagrebu, 2016. 38 Art 5 of the Act on the Conditions of Accession (n 1).

Croatia  311 transfer of powers necessary for becoming an EU Member State. Therefore, the constitutional foundation of EMU membership is the same as the constitutional foundation of EU membership. Participation in the EMU has, however, required certain additional constitutional changes, especially as to the independence of the central bank.

i.  Constitutional Basis for EU Membership As explained, Croatia became an EU Member State at the moment when the EU constitutional order was to a large extent already designed not only by the Treaties but also in EU constitutional practice. Likewise, the Member States’ constitutional practices and, often, the text of their constitutions were adjusted to EU membership. It is, therefore, not surprising that ahead of its accession to the EU, an EU related chapter, containing four Articles, was introduced into the Croatian Constitution by the 2010 amendments.39 However, this Chapter only entered into force on the date of Croatia’s accession to the EU on 1 July 2013. Out of the four provisions contained in the EU Chapter, the first one (Article 143) regulates the constitutional basis for EU membership and the transfer of constitutional powers and is also relevant for future amendments of the Treaties. The second one (Article 144) describes the roles of Croatian institutions at the EU level and provides for the constitutional basis for the enactment of the law governing the relations between the institutions of government in EU affairs. The third Article in the EU Chapter (Article 145) stipulates the relationship between national and EU law, and the fourth one reiterates EU based citizenship rights (Article 146). However, the constitutional basis for Croatia’s accession to the EU was a different provision of the Constitution – namely Article 142, which allows for ‘association and dissociation’ with other states. Until 2010, this provision required that, prior to a parliamentary decision to associate with other states, which is to be reached by a two-thirds majority of the members of the Croatian parliament, the consent of the people is to be expressed at a referendum. The 2010 amendments to the Constitution loosened the referendum criteria, enabling EU membership. Namely, prior to the 2010 Constitutional amendments, the required majority for a positive outcome of a referendum was the strict majority of all voters in Croatia. In fear that under such strict requirements, the EU referendum might fail, the Constitution was amended by decreasing the threshold to the majority of voters who participated. The wording ‘the majority vote of all voters in the state’ was thus changed to ‘the majority vote of all voters voting in the referendum’. The low turnout of only about 44 per cent of eligible voters in Croatia at the referendum on the accession to the EU testified to the fact that the fear of not fulfilling the strict referendum requirement had been reasonable. The entry provision in the EU Chapter (Art 143(1)) contains a reference to the ‘association and dissociation’ provision: Pursuant to Article 142 [the ‘association and dissociation provision’] of the Constitution, the Republic of Croatia shall, as a Member State of the European Union, participate in the creation of European unity in order to ensure, together with other European states, lasting peace, liberty, security and prosperity, and to attain other common objectives in keeping with the founding principles and values of the European Union.

Article 143 imposes substantive limits to EU membership. Croatia, thus, participates only in an EU which is committed to peace, liberty, security and prosperity. It is too early to say whether this will influence the future amendments of the Treaties, and, if so, which ones. So far, there have not been any doctrinal debates on this topic

39 Ch

(VIII) of the Croatian Constitution entitled ‘European Union’.

312  Tamara Ćapeta, Iris Goldner Lang

ii.  Treaty Amendments Future amendments of the EU Founding Treaties do not depend on the ‘association and dissociation’ provision of the Constitution, even if this does not flow clearly from its text. Preparatory documents40 indicate that future Treaty amendments will not need to follow the ‘association and dissociation’ procedure, but rather the usual procedure for signing international treaties, as stipulated in Article 140 of the Croatian Constitution. This is probably based on the logic that future Treaty amendments would not involve the creation of new associations or dissociations, but only the possibility of the transfer of new powers to the EU. Accordingly, Article 143(2) of the Constitution provides: Pursuant to Articles 14041 and 14142 of the Constitution, the Republic of Croatia shall confer upon the institutions of the European Union the powers necessary for the enjoyment of rights and fulfilment of obligations ensuing from membership.

On the one hand, this provision clarifies that once the hurdles imposed by the ‘association and dissociation’ provision are overcome (primarily the positive outcome of a referendum), the Accession Treaty is to be concluded in accordance with the procedure for the ratification of international treaties. Thus, at the moment of entry into the EU, several constitutional provisions served as the basis: the political decision whether to join the EU or not was reached pursuant to the procedure envisaged by the ‘association and dissociation’ provision (Article 142 of the Constitution), which included a referendum and a two-thirds majority of all the MPs. Regulatory powers, however, were transferred to the EU on the basis of the provision of the Treaty regulating the signing of international agreements – Article 140. As the Constitution demands a two-thirds majority in parliament for the transfer of powers by an international treaty, the Accession Treaty was ratified by such a majority.43 However, it did not require another referendum. It seems that drafters of the Croatian Constitution have also opted to use the general rules for the ratification of international treaties for the ratification of any future amendments of the Treaties. The necessary majority for adopting future amendments of the Treaties will depend on the type of amendments. If no new powers are transferred to the EU institutions, a simple majority in parliament will suffice. However, if Treaty amendments grant new powers to the EU, the threshold is higher – a two-thirds majority of all MPs. However, unlike under the ‘association and dissociation’ provision, a referendum is not required. This applies, it seems, even if there is a transfer of new powers.44 Consequently, according to the Croatian Constitution, future Treaty amendments do not require a referendum, but only parliamentary approval. However, the Constitution does not exclude the possibility of a referendum. A referendum may be called by the Croatian parliament 40 Prijedlog za utvrđivanje nacrta promjene Ustava Republike Hrvatske (Draft Proposal for the Constitutional amendments 2010). The same explanation is repeated in the position paper submitted by the MPs belonging to the opposition at the time of the 2010 Constitutional amendments. 41 This provision regulates the process of ratification of international treaties. Those treaties which ‘require the adoption of amendment to laws, international treaties of a military and political nature, and international Treaties which give rise to financial commitments for the Republic of Croatia’ are adopted by the parliament by a simple majority. However, agreements which transfer constitutional powers to another organisation are ratified by a two-thirds majority of all MPs. 42 This provision provides that ratified international treaties become part of the Croatian legal order and have primacy over domestic law. 43 On 9 March 2012, the Croatian parliament unanimously (136 votes in favour, none against) ratified the Accession Treaty. 44 It is questionable whether the procedure based on Art 143 also applies in the event of amendments to the Treaties in order to accept new Member States. As this is changing the ‘association of states’ in terms of its participants, it could be argued that Art 142 (on association and dissociation) might be the relevant provision. In this case, a referendum would

Croatia  313 or the president, on the proposal of the government and with the approval of the prime minister.45 Likewise, parliament may be required to call a referendum on the request of one-tenth of all Croatian voters.46

iii.  Ratification of International Treaties Article 140 of the Croatian Constitution regulates the process of ratification of international treaties. According to this provision, the Croatian parliament ratifies with a simple majority ‘international treaties which require the adoption of amendments to laws, international treaties of a military and political nature and international treaties which give rise to financial commitments for the Republic of Croatia’. On the other hand, ‘international treaties which grant an international organisation or alliance powers derived from the Constitution’ have to be ratified by a two-thirds majority of all MPs. The document of ratification has to be signed by the Croatian president. This was the procedure followed at the time of the Croatian ratification of the TSCG, which required a simple majority in the Croatian parliament since no new powers were thereby transferred to the EU. It will have to be followed again in the future if Croatia ratifies any intergovernmental agreement related to economic and financial integration, such as the ESM Treaty and the Intergovernmental Agreement on the transfer and mutualisation of contributions to the Single Resolution Fund. For both Agreements, a simple majority in the Croatian parliament will suffice. There have not been any public discussions on either the ratification of the TSCG or the potential future ratification of any other intergovernmental agreements related to economic and financial integration.

iv.  Joining the Eurozone By joining the EU, Croatia has become bound by the EU coordination of Member States’ economic policies and the EU monetary policy. The country did not negotiate any opt-outs from adopting the euro, and it is, therefore, obliged to join the eurozone once it fulfils the convergence criteria. For this reason, it is not surprising that the Croatian Constitution does not contain any provision that deals separately with the EMU, including Croatia’s future membership in the eurozone. Therefore, there are no additional, specific constitutional requirements for Croatia to be part of the current design of the EMU and to adopt the euro as its currency in the future. On the other hand, even though not yet a eurozone Member State, Croatia is subject to the EU’s economic governance, which requires the adoption of policies and measures recommended by the Council. In this context, in 2014 excessive macroeconomic imbalances identified by the Commission led to strong policy recommendations and the opening of the excessive deficit procedure (EDP) for Croatia on 28 January 2014. The EDP obliged Croatia to correct its excessive deficit by the end of 2016. The EU’s recommendations were mostly in line with domestic policy priorities – fiscal consolidation and a return to the path of sustainable growth. Croatia adhered to these recommendations, and its deficits consequently dropped below the EU’s 3 per cent of GDP reference value, and, on 16 June 2017, the Council decided that Croatia’s deficit had been be necessary for the acceptance of new Member States in the EU. In the end, the answer will depend on the CC’s position regarding the question of whether the enlargement of the ‘association of states’ in which Croatia participates requires new popular approval. 45 Arts 87(1) and 87(2) of the Croatian Constitution. 46 Art 87(3) of the Croatian Constitution.

314  Tamara Ćapeta, Iris Goldner Lang corrected and closed the EDP.47 In the course of Croatia’s EDP, only modest austerity measures were taken, the most visible being the adoption of two laws of a temporary character: the Act on the Denial of Payment of Certain Material Rights to Employees in the Public Service,48 in force as of 31 March 2015, and the Act on the Denial of the Right to an Increase of Salaries Based on Seniority,49 in force as of 1 April 2014. The former act denied public servants the right to a 2015 Christmas bonus and regress for using annual leave in 2015, while the latter denied the right to increase the coefficient for the complexity of work in the public service based on the number of years of service, and was also applicable until the end of 2015. As explained in section III, the latter act was subject to a constitutional review procedure initiated by nine trade unions and a number of Croatian citizens, but the CC found that the measure had a legitimate aim and that it was proportionate, due to its temporary character. As part of the 2010 constitutional amendment, one change – related to the status of the Croatian central bank, officially called the Croatian National Bank (HNB) – is relevant in the context of Croatia’s compliance with the EMU standards. The objective of the change was to ensure the HNB’s autonomy and independence. Article 53 of the pre-2010 Constitution provided that ‘the Croatian National Bank shall be independent in its work and shall be responsible to the Croatian Parliament’. The Commission considered this provision to be incompatible with EU law and requested its amendment. The 2006 Commission Screening Report on Croatia for negotiating Chapter 17 (Economic and Monetary Policy), stated that the principle of ‘responsibility’ vis-à-vis the Parliament in Article 53 of Croatia’s Constitution appears to be problematic, since it covers all central bank tasks, including decision-making on monetary policy, the competence for which is transferred to the ECB after euro adoption.50

It further continued that the scope of the HNB’s independence is explicitly limited to ‘its work’ (operational independence), which, in the current context, further confirms that the HNB is not totally independent. Indeed, the interaction between allowing for independence only in the HNB’s work on the one hand, and making the HNB responsible vis-à-vis the Croatian Parliament on the other hand, clearly implies that the role attributed by the Croatian Constitution to the Parliament clearly affects the central bank’s independence.51

Article 53 was consequently changed as part of the 2010 Constitutional amendment and now reads: ‘The Croatian National Bank shall be autonomous and independent, and shall report on its work to the Croatian Parliament’. Even though there seems to be agreement from both the Croatian and the EU institutions that Article 53 of the post-2010 Croatian Constitution complies with EU law, currently there are uncertainties as regards HNB’s institutional independence, as stipulated by Croatian secondary legislation. According to the ECB Convergence Report of May 2018, the Act on HNB does not comply with Article 130 TFEU and Article 7 of the Statute of the European System of Central Banks (ESCB) and needs to be adapted accordingly.52 However, the Commission is of a different

47 Council Decision abrogating Decision 2014/56/EU on the existence of an excessive deficit in Croatia, 10000/17 ECOFIN 496 UEM 188, 12 June 2018. 48 NN 36/15. 49 NN 41/14, 157/14 and 36/15. 50 Screening Report: Croatia, Ch 17 – Economic and Monetary Policy, 19 July 2006, p 5. Available at: www.esiweb.org/ pdf/croatia_screening_report_17_hr_internet_en.pdf. 51 Ibid. 52 ECB, Convergence Report, May 2018, pp 177–78. Available at: www.ecb.europa.eu/pub/pdf/conrep/ecb.cr201805. en.pdf?ee1c3b309ded218fe2785c36ce4d65ba.

Croatia  315 opinion. According to the Commission’s Convergence Report, also dated May 2018, there is nothing problematic with the Act on HNB. The Commission established that ‘no incompatibilities and imperfections exist’ as regards the principle of independence of the HNB.53 The divergence between the two Convergence Reports might point to a disagreement on this point between the two EU institutions. It also leaves the respective Member State – in this case, Croatia – in legal uncertainty as regards its compliance with the EU criteria that need to be fulfilled for the adoption of the euro. It remains to be seen whether Croatia will or will not change its Act on HNB, and what the consequences will be if it chooses to follow the logic taken by the Commission and not the ECB. Furthermore, there are further uncertainties as regards the compliance of the Draft Act on the State Audit Office with HNB’s independence. Namely, in its Opinion of April 2018, the ECB warned that the Draft Act, as it then stood, failed to satisfy the requirement of the institutional independence of the HNB, as guaranteed by Article 130 TFEU and Article 7 of the Statute of the ESCB.54 Consequently, the Croatian government made certain changes to its proposal to make it compatible with the national constitutional and EU requirements. By the end of December 2018, the Draft Act on the State Audit Office passed its first parliamentary reading. So far, there have been no signals from either the Croatian (HNB) or the EU side warning that the new version of the Draft Act might be incompatible with the Croatian Constitution and/or EU law. Prior to Croatia’s accession to the EU, the topic of the Croatian adoption of the euro was never discussed in public separately from other EU policies. The benefits and/or challenges of the future adoption of the euro formed no part of public discourse, either on the side of advocates of EU membership or its opponents, who were not numerous at the time membership was being decided. Things started changing in 2018, as the adoption of the Eurostrategy55 in May 2018 and the more recent Croatian efforts related to the process of Croatian accession to the eurozone were accompanied by public discussions, to a large extent initiated by the HNB. Croatia is currently taking steps towards entering the Exchange Rate Mechanism II (ERM II), in which a Member State must remain for two years and fulfil the convergence criteria in order to join the eurozone. However, as stated by the governor of the HNB, Boris Vujčić, ‘the process of Croatian entry into ERM II was not clear’ at the outset, ‘since the last country to join ERM II was Slovakia and it happened in 2005’.56 Consequently, Croatian officials initiated informal discussions with the ECB and the eurozone Member States and it ‘became clear that in the Croatian case, parallel access to ERM II and to the Single Supervisory Mechanism (SSM) will be needed’.57 Interestingly, there is no mention of the need to join in parallel ERM II and the SSM in EU Treaties and its secondary legislation. Neither are there any Treaty specifications as to the conditions for entering ERM II. Based on the Treaty, it also seems that joining the ERM II does not require any formal decision, but should happen automatically. Nevertheless, eurozone Member

53 EC, Convergence Report, May 2018, p 63. Available at: www.ec.europa.eu/info/sites/info/files/economy-finance/ ip078_en.pdf. 54 Opinion of the European Central Bank of 6 April 2018 on Amendments to the Act on the Croatian National Bank and to the Act on the State Audit Office, CON/2018/17. Available at: www.ecb.europa.eu/ecb/legal/pdf/en_con_2018_ 17_f_sign.pdf. 55 Odluka o donošenju Strategije (n 11). 56 Interview with the Croatian Governor of the HNB, Boris Vujčić of 26 December 2018. Available at: www.tportal. hr/biznis/clanak/gong-ova-prijava-protiv-mene-govori-da-ne-znaju-moju-ulogu-i-odgovornost-ali-hrvatska-je-punagenerala-poslije-bitke-foto-20181226. 57 Ibid.

316  Tamara Ćapeta, Iris Goldner Lang States have decided to establish a new practice of parallel accession to ERM II and the SSM, and tighten up the conditions for joining ERM II, in the cases of Bulgaria and Croatia. So far, nobody has tried to challenge this practice. The new practice is visible from the document on the ‘Statement on Bulgaria’s Path Towards ERM II Participation’,58 as well as from the statements of Commission officials.59 Bulgaria is the first Member State following the newly established practice towards the adoption of the euro and Croatia is set to follow its example by taking precisely the same steps as Bulgaria. In July 2018, Bulgaria sent a letter of intention to the presidents of the Eurogroup and Ecofin on Bulgaria’s wish to join ERM II.60 Croatia is planning to send a similar letter in 2019.61 Based on the information available to the public, the signals from Brussels so far seem to be positive.62

IV.  Constitutional Obstacles to EMU Integration A.  Domestic Constitutional Requirements in the Case of Further EMU Integration If future steps towards deepening economic and financial integration in the EU require Treaty amendments, the Croatian Constitution imposes some substantive and some procedural requirements. These requirements, however, are not peculiar for the EMU but are the same as for any other Treaty change. Substantive obstacles, possibly imposed by the Constitution, are explained in more detail further below in this Chapter. As far as procedural requirements are concerned, as explained above, amendments of the Treaties, including in the field of the EMU, require the appropriate majority in parliament, with the possibility, but not the obligation, to hold a referendum.63 Treaty amendments by which new powers are transferred to the EU require the approval of two-thirds of the members of the Croatian parliament. If, on the contrary, a Treaty amendment in the economic area does not increase EU powers, a simple majority in parliament suffices. An example of such a change was the 2011 introduction of Article 136(3) TFEU, for which the CJEU considered that it did not change anything in the redistribution of powers between the EU and its Member States.64 However, as Croatia was not yet a Member State then, it did not approve this change separately but rather adopted it as an EU package together with the rest of the Treaty provisions.

58 Statement on Bulgaria’s Path Towards ERM II Participation, 12 July 2018. The statement has been issued by the eurozone Member States, Denmark and ECB, in the presence of the Commission and the Bulgarian representatives. Available at: www. consilium.europa.eu/en/press/press-releases/2018/07/12/statement-on-bulgaria-s-path-towards-erm-ii-participation/#. 59 Tomislav Pili, ‘Nove članice morat će se pridružiti i bankovnoj uniji’ (‘New Member States will also have to join the Banking Union’), 3 December 2018. Available at: www.poslovni.hr/svijet-i-regija/nove-clanice-morat-ce-se-pridru ziti-i-bankovnoj-uniji-347663. 60 Letter to the presidents of the Eurogroup and Ecofin sent by the Bulgarian Minister of Finance and the Governor of the Bulgarian National Bank on Bulgaria’s path towards ERM II participation, 11119/18, ECOFIN 729 UEM 267, 13 July 2018. Available at: www.consilium.europa.eu/media/36125/st11119-en18.pdf. 61 VPP, ‘Vujčić najavio prvi konkretni korak prema uvođenju eura (‘Vujčić Announces the First Concrete Step Towards the Introduction of Euro’), 15 December 2018. Available at: www.tportal.hr/biznis/clanak/vujcic-najavio-prvi-konkretn i-korak-prema-uvodenju-eura-foto-20181215. 62 See the statement by the vice president of the EC Valdis Dombrovskis in Tomislav Pili, ‘Bugarska uskoro u ERM II, nadamo se potom i Hrvatska’ (‘Bulgaria Soon in ERM II and We Hope Croatia Will Follow’), 4 December 2018. Available at: www.poslovni.hr/trzista/bugarska-uskoro-u-erm-ii-nadamo-se-potom-i-hrvatska-347679. 63 Art 87 of the CC. 64 Case C-370/12 Thomas Pringle v Government of Ireland and Others, ECLI:EU:C:2012:756.

Croatia  317 Equally, the deepening of economic and financial integration through intergovernmental agreements would require ratification by the Croatian parliament by either a simple majority or two-thirds majority, the second if an international organisation or alliance is granted powers derived from the Constitution.

B.  The Role of the Constitutional Court in the Context of Further EMU Integration Do the courts, especially the CC, influence government preferences with regard to economic and financial integration? For the time being, the Croatian CC has emphasised that the political branches of the government enjoy a large margin of discretion in economic policy choices. Therefore, the CC has repeatedly stressed that it is not willing to adjudicate on the usefulness of measures of economic policy.65 Whether a certain measure of economic policy is good or bad for the domestic economy is a decision entirely in the hands of the government and the parliament, which carry all the responsibility for such decisions. The CC has, at the same time, explained that even though the government has wide discretion in choices of economic policy, it will still check for the constitutionality of the chosen measures.66 This became evident in the context of the adoption of the Act on the Denial of the Right to an Increase of Salaries Based on Seniority67 – a national measure imposed as a response to Croatia’s subjection to EDP, as explained in Chapter II. The Act was subject to a constitutional review procedure initiated by nine trade unions and a number of Croatian citizens. In its decision, dated 30 March 2015, the CC rejected the proposal and declared that the denial of the right to an increase of salaries based on seniority is in accordance with the Croatian Constitution.68 The CC based its decision on the argument that ‘there are imperative reasons of public interest which justify its application (correction of excessive deficit in accordance with Council recommendations)’.69 Nevertheless, the CC warned that potential further extension of the application of the law in question could turn the measure into a permanent one, which would raise the question of the functioning of the rule of law and the principle of legal certainty and could call into question citizens’ confidence in public authority.70 In other words, the CC found that the measure had a legitimate aim and that it was proportionate, due to its temporary character. Consequently, in the event of future austerity measures, no matter whether motivated by Croatia’s EU obligations or purely domestic reasons, further constitutional review procedures could be expected. This constitutional practice seems to be in line with the practice of the other Member States’ constitutional courts during the recent economic crisis.71 Could the same be applied to the government’s decision to transfer part of its economic or fiscal regulatory powers to the EU? Is such a decision also covered by the broad discretion that the government enjoys in the economic sphere? As the CC has started to develop a doctrine on ‘constitutional identity’ (see below) which might be seen as a substantive limit to further transfer of powers, this doctrine may influence 65 See, for instance, Case U-I-4405/2013 and U-II-3222/2014 of 31 March 2015, para 38. 66 See Case U-I-1625/2014 and others, U-II-241/2015, U-II-383/2015 and U-II-1343/2015 of 30 March 2015. 67 NN 41/14, 157/14 and 36/15. 68 Decision U-I-1625/2014 and others, U-II-241/2015, U-II-383/2015, U-II-1343/2015, 30 March 2015. 69 Ibid, para 66. 70 Ibid, para 67. 71 Cf Tamara Ćapeta, ‘The Role of Courts in Economic Governance in the European Union’ in F J Carrera Hernández (ed), Towards a New Government of the Economy in the European Union? (Donostia, Aranzadi, 2018), 155–89.

318  Tamara Ćapeta, Iris Goldner Lang the choices left in the hands of the government about the transfer of fiscal powers to the EU. It is, however, only possible to speculate on this issue, given that the constitutional case law on the domestic constitutional limits of EU integration has not yet started to develop. It suffices here to say that once the CC is called to apply the newly developed concept of ‘constitutional identity’ to the sphere of EU law, it might become clearer whether the transfer of fiscal and other economic powers to the EU touches the heart of Croatian identity. However, it should be emphasised that procedurally the CC is powerless to stop Treaty amendments agreed upon by the government and approved by parliament, as well as Croatia’s ratification of international agreements in the area of economic and financial integration, as it does not enjoy the power of either prior or posterior control of the constitutionality of international treaties. Thus, the concept of ‘constitutional identity’, even if understood by the CC as preventing the transfer of fiscal and economic powers (or some parts of them), can only influence treaty amendments or intergovernmental agreements indirectly, if political institutions feel prevented by this concept, in terms of agreeing to the further economic and fiscal empowerment of the EU.

C.  Setting the Limits to EU Integration – The Supremacy of the Domestic Constitution Apart from the description of the Union in which Croatia participates as a Union only as long as it is committed to peace, liberty, security and prosperity, no substantive limits to further EU integration, either generally or in relation to the EMU area, are set explicitly by the Constitution. The Croatian Constitution also does not contain a written ‘eternity clause’, which would prevent changes to a part of the Constitution. However, there are hints that the CC will not accept unconditional membership, as manifested in two of its recent decisions, both relating to the constitutionality of referenda.72 In the last paragraphs of these decisions, the CC announced that the Constitution has supremacy over EU law, without elaborating on it any further. With this declaration – which was unnecessary for the decision in the concrete cases – the CC took the first step towards imposing constitutional limits on EU membership. This, for the time being only, in theory, opens the possibility of judicial scrutiny of EU law, including EMU related measures. The proclaimed supremacy of the Constitution cannot, of course, mean that any clash of EU law with any constitutional provision results in the non-applicability of EU law in Croatia. The supremacy of domestic constitutions in other constitutional systems of EU Member States is usually confined to serious clashes between EU law and the domestic constitution. Only EU measures touching on the core of domestic constitutional choices, on something that represents the country’s ‘constitutional identity’, may be proclaimed inapplicable. Given the openness of the Croatian CC to the influences of other CCs in the EU, it is to be expected that the proclaimed supremacy of the Constitution will be refined in line with other constitutional practices.73

72 Decision U-VIIR-1159/2015 of 8 April 2015 of the Croatian CC on the application by the Croatian parliament to the CC to determine whether the question proposed to be put at the national referendum on outsourcing conforms to the Constitution, para 60; and Decision U-VIIR-1158/2015 of 21 April 2015 of the Croatian CC on the application by the Croatian parliament to the CC to determine whether the question proposed to be put at the national referendum on giving highways in concession conforms to the Constitution, para 45. 73 By this, we do not want to imply that different Member States’ constitutional positions are the same, just that they are more elaborate than simply proclaiming the supremacy of a constitution. In this respect, see Monica Claes and

Croatia  319

D.  The Concept of ‘Constitutional Identity’ A doctrine which holds that a certain part of the Constitution is its ‘core’ and, therefore, unchangeable had not existed in Croatia until 2013. Only then, although not in a case related to an EU issue, did the CC start to develop a concept of ‘constitutional identity’. The issue arose as a result of the increase in the number of referenda after the 2010 constitutional amendment changing the referendum requirements. Due to the non-existence of any legislation regulating referenda in Croatia, the task of determining whether there are questions and, if so, which ones, which cannot be decided by a referendum, fell on the CC. In several cases,74 ruling on the constitutional acceptability of a referendum question, the CC explained that the limits to the possibility of a constitutional amendment based on a referendum exist and are based on a concept of ‘constitutional identity’. The CC will intervene if there is a serious threat to ‘the structural characteristics of the Croatian constitutional state or, in other words, of its constitutional identity, including the highest values of the constitutional order of the Republic of Croatia (Articles 1 and 3 of the Constitution)’.75 The concept of ‘constitutional identity’, however, has not yet been applied within the EU context. However, taking into consideration the willingness of the CC to follow and apply the practices of other courts of constitutional jurisdiction in Europe, it can be assumed that this is just a matter of time. Constitutional scholars also suggest this course of action.76 Thus, it is highly likely that ‘constitutional identity’ will become a limit to further integration and a measure for judging, if necessary, the validity of EU measures in Croatia, including EMU related measures.

i.  The Content of the Concept of ‘Constitutional Identity’ As for its content, for now, the CC has mentioned two Articles of the Constitution as expressing Croatia’s ‘constitutional identity’ – Articles 1 and 3. Article 1 reads as follows: The Republic of Croatia is a unitary and indivisible democratic welfare state. Power in the Republic of Croatia derives from the people and rests with the people as a community of free and equal citizens. The people exercise this power through the election of representatives and through direct decision-making.

Article 3 lists the basic constitutional values: Freedom, equal rights, national and gender equality, peace-making, social justice, respect for human rights, inviolability of ownership, conservation of nature and the environment, the rule of law and a democratic multiparty system are the highest values of the constitutional order of the Republic of Croatia. Jan-Herman Reestman, ‘The Protection of National Constitutional Identity and the Limits of European Integration on the Occasion of the Gauweiler Case’, (2015) 16, German Law Journal, 917–970. 74 Notification SuS – 1/2013 of the CC of 14 November 2013 on the popular constitutional referendum on the definition of marriage. See also, Decision U-VIIR-164/14 of 13 January 2014; or Decision U-VIIR-1159/2015 of 8 April 2015 of the Croatian CC on the application by the Croatian parliament to the CC to determine whether the question proposed to be put at a national referendum on outsourcing conforms to the Constitution, point 33.4 of the decision. 75 Ibid, para 5 of the Notification SuS – 1/2013. Translation by the authors. 76 Branko Smerdel, ‘In Quest of a Doctrine: Croatian Constitutional Identity in the European Union’ (2014) 64(4) Zbornik pravnog fakulteta u Zagrebu, 513; Ana Horvat Vuković, ‘U ime Ustava – materijalne granice promjene Ustava’ (In the Name of the Constitution – Substantive Limits to Constitutional Amendments) (2015) 65 Zbornik Pravnog fakulteta u Zagrebu, 481.

320  Tamara Ćapeta, Iris Goldner Lang These two provisions state a number of values, whose meaning in terms of imposing limits to further integration will have to be further elaborated.

ii.  ‘Constitutional Identity’ as a Limit to Further Economic and Financial Integration The concept of constitutional identity is at the beginning of its judicial development. It is impossible to predict its possible influence on further EU economic and financial integration. However, some issues can be foreseen. For instance, could the statement that Croatia is a ‘democratic welfare state’ prevent the transfer of the budgetary powers of the Croatian parliament to the EU level? In one of the referendum cases, the CC considered that the budget lies under the exclusive competence of the bodies of representative democracy.77 This statement served to uphold the CC’s position that questions relating to the budget cannot be decided by a referendum, but only by parliament. What remained unanswered, as it was not relevant for the case at issue, is whether budgetary power is reserved for Croatian bodies of representative democracy, or if it can be transferred to EU bodies of representative democracy. If the CC reads the Constitution in the previous way, this will impose an impediment to the Treaty amendments creating fiscal powers at the EU level.78 However, as already explained, control of the CC over such a transfer can only be indirect. This is so because, unlike some other constitutional courts in Europe, Croatia’s CC does not have jurisdiction to perform either a priori constitutional review of the Treaties or a constitutional review of Treaties that have entered into force.79 Therefore, the question of the constitutionality of amendments to the Founding treaties cannot come directly before the CC. The potential of the emerging concept of ‘constitutional identity’, whose content is still to be elaborated, will depend on the willingness of political institutions to embrace both the concept itself and the content as interpreted by the CC. Nevertheless, one may imagine the situation in which the constitutionality of a measure enacted under some new enabling Treaty clause might, after the proclaimed supremacy of the Constitution, become an issue in front of the CC. This could give the CC the indirect possibility to judge the constitutionality of the enabling Treaty provision. The consequences of the potential declaration of unconstitutionality for the future application of the Treaty in Croatia are, however, unclear. It is to be hoped that any conflict of this kind will be avoided by an interpretation of conformity in the spirit of the EU pluralist constitutional order.

E.  Sovereignty Clause Another possible avenue through which the CC could impose constitutional limits on further EU integration is the sovereignty clause. The Constitution determines that Croatia is a sovereign state,

77 U-VIIR-1159/2015, para 33.3 (n 30). 78 Of course, such an impediment might be further nuanced, depending on the modalities of the transfer of fiscal powers. See, for instance, the decision of the German Federal Constitutional Court on the constitutionality of German participation in the ESM and TSCG, 2 BvR 1390/12, particularly paras 238 and 244. 79 Jasna Omejec, ‘Legal Framework and Case-Law of the Constitutional Court of Croatia in Deciding on the Conformity of Laws with International Treaties’ Report, European Commission for Democracy Through Law (Venice Commission), The Constitutional Court of Montenegro and OSCE (2009) CDL-JU(2009)035 www.venice.coe.int/webforms/documents/default.aspx?pdffile=CDL-JU(2009)035-e.

Croatia  321 and describes sovereignty as inalienable, indivisible and non-transferable (Article 2). However, whatever these characterisations mean, they do not prevent the transfer of regulatory powers, nor do they impose any clear limits on such a transfer. The very same article allows for entering into alliances with other states, whereas other constitutional provisions provide for a procedure to be used for such transfer of powers. The only limit imposed is the existence of the possibility of withdrawal, which, as already explained in the introduction, is definitively settled by the Lisbon Treaty Article 50 TEU. Having in mind the current development of the relationship between constitutional courts of EU Member States and the CJEU, it is more likely that the CC will use the ‘constitutional identity’ doctrine and not the sovereignty clause to impose limits on integration. This is even more probable, given the influence of the German constitutional doctrine.

F.  Constitutional Obstacles to EMU Reform Proposals The current EMU reform proposals maintain and intensify the EU’s trajectory towards even stronger monetary, economic and financial integration.80 They further reduce the national control of fiscal policies and national budgetary powers. Consequently, while contributing to further EMU integration and stability, some of these rules could trigger a number of legal/constitutional questions. It is difficult to predict Croatia’s position vis-à-vis the current and any future EMU related reform proposals. The domestic political orientation and constitutional jurisprudence can only be taken as mild indicators, but not as absolutely reliable benchmarks for the following reasons. First, there have not been any official statements or public discussion on these proposals in Croatia. Second, as explained previously, the existing jurisprudence of the Croatian CC is not too helpful in this respect. Namely, even though the Croatian CC has stated that the adoption of the state budget and its allocation is a matter of exclusive competence of the bodies of representative democracy, it has not explained whether and under which conditions budgetary decision-making powers could be transferred to EU bodies.81 Further, the jurisprudence of the Croatian CC vis-à-vis the constitutional limits to EU membership is still generally at its early stage. It is only recently that the CC has stated that the Constitution has supremacy over EU law, without elaborating on this statement any further.82 Therefore, there is a theoretical possibility that the CC could indirectly proclaim an EMU measure unconstitutional due to its encroachment on national budgetary powers, by stating that a national measure adopted under the respective EMU measure is unconstitutional. However, this is difficult to conceive in the near future, predominantly for the two reasons discussed previously. First, the current political climate in Croatia is mostly pro-European and prointegrationist. Nevertheless, the current Croatian position of being a mostly ‘obedient follower’ of EU/EMU policies could change as Croatia draws closer to joining the eurozone. Second, the Croatian CC is open to influences from other European Constitutional Courts, predominantly the German Bundesverfassungsgericht. Consequently, the approval of these measures in the other 80 EC, COM (2017) 822, Communication on New budgetary instruments for a stable eurozone within the Union framework; EC, Communication, COM (2017) 823, Communication on A European Minister for Economy and Finance; EC, COM (2017) 824, Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States; EC, COM (2017) 826, Proposal for a Regulation amending Regulation 1303/2013 laying down common provisions on European Funds; EC, COM(2017) 827, Proposal for a Council Regulation on the establishment of the EMF. 81 U-VIIR-1159/2015 (n 30) para 33.3. 82 Ibid, para 60; U-VIIR-1158/2015 (n 72) para 45.

322  Tamara Ćapeta, Iris Goldner Lang EU Member States would be a strong positive signal for Croatia’s CC if confronted with the question of their (un)constitutionality in Croatia. Nevertheless, one can identify certain particularities of some of the proposed measures, which are applicable to Croatia’s position. First, no legal issues are to be expected in relation to the Proposal for a Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States.83 This Proposal builds on Directive 2011/85 on requirements for budgetary frameworks of the Member States, which is part of the Six Pack.84 The Proposal obliges the eurozone Member States, and the other Member States who are free to participate, to set up independent national bodies with extensive monitoring and controlling powers towards the domestic budgetary authorities. In Croatia, these powers have already been entrusted to the Fiscal Policy Committee, established based on the Decision on the establishment of the Fiscal Policy Committee.85 The Committee has gained even more powers based on the newly adopted Act on Fiscal Responsibility, which came into force on 1 January 2019.86 The duty to ‘comply-or-justify’ contained in the EU Proposal is, at least to a certain extent, mirrored in Article 24(2) of the Act, which obliges the Croatian government to determine whether there are any risks related to the fulfilment of fiscal rules if such a risk has been identified in the Committee’s report. However, it seems that neither the EU Proposal nor the newly adopted Croatian Act lays down any sanctions if the domestic budgetary authority chooses not to follow the Committee’s recommendations. It remains to be seen, though, whether the implementation of the future Directive will require any additional changes and strengthening of the Croatian Fiscal Policy Committee. If so, they should not be of major scope. The establishment of the EMF and its functioning as a backstop to the Single Resolution Board (SRB)87 could open up important legal and political issues for Croatia. The partly good news (for Croatia) is that – unlike the current functioning of the ESM, as the backstop to SRB which is exclusively reserved for eurozone Member States – according to the EMF Proposal, the backstop would in future be provided jointly by the EMF and by the non-eurozone Member States which have joined the Banking Union.88 This is a positive change for the Member States like Croatia (and Bulgaria), which aspires to join the Banking Union and ERM II, as a condition for adopting the euro. Croatia will have to spend more than two years as a member of the Banking Union, but still as a non-eurozone Member State. In this period, if adopted, the new mechanism will create a backstop for the SRB in relation to Croatian banks, with the possibility of granting credit lines or guarantees to the SRB of 60 billion euros.89 However, one cannot ignore the fact that the EMF Proposal continues to make a difference between the eurozone and the non-eurozone Member States, as the backstop support remains separated between the two groups of countries. The bad news (for Croatia) is that, according to Article 24 of the Proposal, before Croatia enters into close cooperation, ie, before it joins the Banking Union, it will have to provide credit lines or guarantees in support of the SRB, subject to the ECB’s decision on the establishment of close cooperation with the HNB. If so, Croatian entry into the Banking Union will be conditional on the Croatian parliament’s decision to provide guarantees to the SRB. This is problematic from two perspectives. 83 COM (2017) 824. 84 Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States [2011] OJ L 306/41. 85 Official Gazette 156/13. 86 Official Gazette 111/2018, 12 December 2018. 87 COM(2017) 827. 88 Ibid, Art 22(1). 89 Ibid.

Croatia  323 First, it adds another step on the long path of Croatia’s accession to the eurozone. First, Croatia needs to be within the ERM II for more than two years before it is entitled to adopt the euro. Also, it has become clear by now that Croatia needs to join the Banking Union simultaneously to joining the ERM II. Finally, in the event of the establishment of the EMF, based on the current Proposal, Croatia’s membership in the Banking Union will be possible only if the Croatian parliament provides guarantees to the Single Resolution Fund. Second, this is problematic from the perspective of the constitutional role of the Croatian parliament. Based on Articles 81 and 91 of the Croatian Constitution, the parliament adopts the state budget by a majority vote of all its members. However, the adoption of the proposed Regulation on the EMF will force the Croatian parliament to issue the necessary guarantees to the SRB. Even though the decision will technically remain with the Croatian parliament, it will be defined by EU bodies in advance of the vote in the Croatian parliament. This will impact parliamentary discretion on defining the state budget. All this, at least theoretically, opens up the possibility to challenge the constitutionality of this procedure. As explained previously, it is difficult to predict the outcome of such a constitutional inquiry, considering the lack of Croatian jurisprudence on this matter. Similarly, the Proposal for a Regulation on common provisions on European Funds could be viewed as indirectly influencing Member States’ competence to define their economic policies.90 The decision on the type of reforms to be implemented is taken by the Member State concerned, in the form of a contractual commitment with the EU. The choice of economic policies, therefore, remains in national hands, but carrying out the reform commitment is linked to financial support from EU funds. Consequently, problems arise if the contractual commitment is not carried out. Croatia has in the past used similar financial instruments with international financial institutions that linked the disbursements of funds to the implementation of reforms.91 There have been no legal challenges to such instruments so far.

V.  Constitutional Rules and/or the Practice of Implementing EU Law and EMU Related Instruments, Including the Role of Parliamentary Bodies Croatia acceded to the EU only relatively recently so that the implementation of the vast majority of EU law – including the EMU related measures – took place as part of the harmonisation of the national system with the acquis communautaire. In the pre-accession phase, Croatia’s obligation to align its law with EU law derived from the Stabilisation and Association Agreement and its commitments under the accession negotiations.92 At that time, the process of harmonisation was enacted by state administrative bodies – in the phase of the preparation phase of legislative proposals – and by the Croatian parliament – in the phase of the adoption of laws. For the purpose of harmonisation, the Croatian parliament established a European Integrations Committee in 2001, whose task was to follow up the harmonisation process. State administrative bodies

90 COM (2017) 82. 91 For example, see: www.projects.worldbank.org/P117665/fiscal-social-financial-sector-development-policy-loandpl?lang=en, www.documents.worldbank.org/curated/en/403331475102055400/Croatia-ECONOMIC-RECOVERY-DPL-2. 92 Art 62 of the Stabilisation and Association Agreement between the European Communities and their Member States, of the one part, and the Republic of Croatia, of the other part, signed in Brussels, 29 October 2001, COM (2001) 371 final, 9 July 2001.

324  Tamara Ćapeta, Iris Goldner Lang had to submit a ‘Statement of Compatibility’ to parliament, and an accompanying ‘Table of Concordance of Legislative Provisions of the Republic of Croatia with the Relevant EU Provisions’ together with the draft texts of new Croatian laws. In addition, according to the then Croatian parliament’s Standing Orders, a distinction was made between draft legislation that should be harmonised and other ‘ordinary’ draft legislation. Upon accession, the involvement of the Croatian parliament in EU affairs was stipulated both by the Croatian Constitution and the Act on Cooperation of the Croatian parliament and the government of the Republic of Croatia.93 Most importantly, the European Affairs Committee monitors the activities of the European Parliament in European affairs, adopts the Work Programme for considering the positions of the Republic of Croatia and considers EU documents and the positions of Croatia on EU documents and has the authority to adopt conclusions thereon.94 The European Affairs Committee of the Croatian parliament is in charge of conducting parliamentary scrutiny and subsidiarity checks, but the process may be initiated by each MP, parliamentary committees, parliamentary party groups or the government. The Croatian parliament has so far used its right/obligation to conduct subsidiarity checks only on a few occasions, and none of them has been related to EMU measures. In October 2014, the Croatian parliament issued a reasoned opinion on the Proposals of several Directives dealing with waste,95 claiming that they did not comply with the principle of subsidiarity.96 Both the European Affairs Committee and the Environmental Protection Committee considered that the Proposals under review did not take into consideration the existing differences among national systems of waste management which prejudiced the balanced development of European regions. However, there was not a sufficient number of reasoned opinions to initiate the ‘yellow card’ procedure.97 However, the Juncker Commission withdrew the Proposal in the meantime.98 More recently, in 2016, the Croatian parliament was one of 11 national parliaments to initiate the ‘yellow card’ procedure in relation to the Proposal of the Posted Workers Directive.99 However, the Commission concluded that its proposal complied with the principle of subsidiarity and decided to maintain it.100 Additionally, since Croatian accession to the EU, the Croatian parliament has sent a number of opinions, as part of ‘political dialogue’, and received Commission responses.101 Apart from its role in the subsidiarity procedure and in ‘political dialogue’, the European Affairs Committee compiles an annual parliamentary Work Programme which contains EU acts that are to be scrutinised. Specialised parliamentary committees may propose draft acts from their scope of work to be included in the Work Programme. When the draft act, together with the corresponding Position of the Republic of Croatia, is delivered to the European Parliament, specialised committees may discuss them and send their opinions to the European Affairs 93 NN 81/13. 94 For details of the European Affairs Committee, see: www.sabor.hr/hr/radna-tijela/odbor-za-europske-poslove-9-saziv. 95 EC, COM (2014) 397, Proposal for a Directive amending Directives 2008/98/EC on waste, 94/62/EC on packaging and packaging waste, 1999/31/EC on the landfill of waste, 2000/53/EC on end-of-life vehicles, 2006/66/EC on batteries and accumulators and waste batteries and accumulators, and 2012/19/EU on waste electrical and electronic equipment. 96 Reasoned opinion of the Croatian parliament on Commission COM (2014)397, www.ipex.eu/IPEXL-WEB/dossier/ files/download/082dbcc548cd77e10148e4f3bf0f181a.do. 97 Only the Austrian, Croatian and Czech parliaments issued reasoned opinions. 98 Commission’s response, www.ipex.eu/IPEXL-WEB/dossier/files/download/082dbcc54d4a5c3c014d4cc47c6b0237.do. 99 Reasoned Opinion on the Proposal for a Directive of the European Parliament and of the Council amending Directive 96/71/EC of the European Parliament and of the Council of 16 December 1996 concerning the posting of workers in the framework of the provision of services COM (2016) 128. Available at: www.ec.europa.eu/dgs/secretariat_general/ relations/relations_other/npo/docs/croatia/2016/com20160128/com20160128_sabor_opinion_en.pdf. 100 Reply from the Commission, C(2016) 4826 final, 20 July 2016. Available at: www.ec.europa.eu/dgs/secretariat_general/ relations/relations_other/npo/docs/croatia/2016/com20160128/com20160128_sabor_reply_en.pdf. 101 For the opinions sent from 2013 until the end of 2018, see www.ec.europa.eu/dgs/secretariat_general/relations/ relations_other/npo/croatia/2018_en.htm.

Croatia  325 Committee which may, by a majority of votes of its members, draw a Conclusion on the Position of the Republic of Croatia based on which the government acts in EU institutions.102

VI.  Resulting Relationship between EMU Related Law and National Law The EU represents the most developed instance of interplay of national, regional (EU) and international law.103 Both the creation/development and the effects of EMU related measures vividly mirror this complex interchange between different layers of law, which is partly the result of the nature of EU law itself, and partly the consequence of the hurdles in EU monetary and financial integration. The effects of the interaction between the EU-level and national-level monetary and financial rules can be detected on both the EU and national sides and at both the constitutional and lower levels of law. On the Croatian side, the impact of EMU related measures and procedures is significant, both at the constitutional and other levels. This is despite the fact that Croatia only recently joined the EU and started participating in EU monetary and economic governance, and is a Member State with a derogation. Consequently, even though EU legislation aimed specifically at eurozone Member States does not apply to Croatia, other SGP rules, applicable to non-eurozone Member States, apply equally to Croatia. As a result, Croatia was subject to the excessive deficit procedure from 2014 until 2017, with the resulting (modest) austerity measures, the most visible being the adoption of two temporary laws, one of which was subject to a constitutional review procedure (see section IV.B). At the constitutional level, the sole objective of the 2010 constitutional amendment was to enable Croatian accession to the EU by inserting a four-provision EU Chapter into the Constitution and amending a number of other constitutional provisions, among them Article 53 related to the status of the HNB (section III.A.iv). Therefore, the 2010 constitutional amendment and the Croatian commitment to SGP rules reflect the influence that EMU related measures exert on Croatia. This influence will surely grow over time for two reasons. First, as Croatia draws closer to and finally joins the eurozone, it will be bound by an ever-increasing number of EU measures. This is already visible at this stage, in the process of Croatia’s entry into ERM II and the Banking Union (section III.A.iv). On the other hand, EU influence over national economic and financial policies will grow with the adoption of new EMU related measures and consequent further integration in this field. The EU reform proposals currently being prepared testify to the fact that EU measures are becoming ever more demanding and restrictive on national economic policies and budgetary autonomy (section IV.F). This opens the possibility for the Croatian side to define and set limits to further EU economic and financial integration, which shows us the other side of the coin: the question of the impact of Croatian constitutional limitations on further EU integration in this field. However, here we are faced with a significant constitutional limitation: according to its current reading of the Constitution, the Croatian CC is not empowered to review the constitutionality of international agreements either before or after they have entered into force. It can only control the constitutionality of the procedure of their adoption (section II). 102 For the adoption of the addendum to the 2018 Work Programme by the European Affairs Committee, see: www. sabor.hr/hr/radna-tijela/odbori-i-povjerenstva/dopuna-radnog-programa-za-razmatranje-stajalista-republike-0. 103 Iris Goldner Lang, ‘The European Union and Migration: An Interplay of National, Regional, and International Law’ (2017) 111 AJIL Unbound 509–13.

326  Tamara Ćapeta, Iris Goldner Lang On the procedural side, any future Treaty amendments would have to be adopted by the Croatian parliament either by a simple majority or a two-thirds majority (if new powers are granted to the EU) of all the members of the Croatian parliament. A referendum would not be required but could be called by the Croatian parliament, the president on the proposal of the government and with the approval of the prime minister, or the parliament on the request of onetenth of all Croatian voters. Similarly, in the case of the Croatian ratification of an international treaty in the area of economic and financial integration, a two-thirds majority of all members of the parliament would be required if the international organisation was to be granted powers derived from the Constitution, whereas in other cases a simple majority would suffice. A simple majority was used with the ratification of the TSCG, and it can be expected that it would be used again for the ESM Treaty and the Intergovernmental Agreement on the transfer and mutualisation of contributions to the Single Resolution Fund (section III.B–C). On the substantive side, despite the existing lack of direct constitutional review of international treaties, we could contemplate the possibility that the CC indirectly decides on the constitutionality of a Treaty/international treaty provisions by reviewing a national measure adopted to enable its functioning. However, here we can only speculate on possible limitations set by Croatian constitutional law, as the jurisprudence of the Croatian CC is still in its early stages and is, therefore, only mildly indicative of future developments. The existing case law on the supremacy of the Croatian Constitution over EU law (section IV.C) and on the exclusive competence of the bodies of representative democracy over the budget (section IV.B) does not answer the question of the limits of the transfer of budgetary powers to the EU and, therefore, open the door for further jurisprudence in this area. It is most likely that, if the opportunity arises, the CC would rely on the concept of ‘constitutional identity’ and allow the possibility for this concept to be relied upon by Croatian legislative and executive authorities, also in negotiations on new instruments in the Council and the European Parliament (section IV.D.ii). However, considering the openness of the Croatian CC to the influences of other European Constitutional Courts, predominantly the Bundesverfassungsgericht, a green light to further EMU related integration from other European constitutional capitals would be a strong signal to the Croatian CC. Further, considering the current Croatian pro-integrationist political climate and its aspirations to join the eurozone as soon as possible, the Croatian political authorities can be expected not to create any hurdles in the process. Nevertheless, the current Croatian position as an ‘obedient follower’ could change as Croatia draws closer and finally joins the eurozone, thereby becoming fully aware of the impact of these measures on Croatia (section IV.F). Finally, Croatia’s indirect influence on further EU economic and financial integration is already visible at this stage, as Croatian (and Bulgarian) accession to the eurozone creates new practices on the side of the EU. The newly established practice of having to join in parallel ERM II and the SSM – even though this is nowhere to be found in the Treaties or in EU secondary legislation – is a striking testimony to this.

References S Bagić, Načelo razmjernosti u praksi europskih sudova i hrvatskog Ustavnog suda (The Principle of Proportionality in the Case-law of European Courts and the Croatian Constitutional Court), (Zagreb, Pravni fakultet Sveučilišta u Zagrebu, 2016). M Claes and JH Reestman, ‘The Protection of National Constitutional Identity and the Limits of European Integration on the Occasion of the Gauweiler Case’ (2015) 16, German Law Journal, 917–70. T Ćapeta, ‘Courts, Legal Culture and the Enlargement of the EU’ (2005) 1, Croatian Yearbook of European Law and Policy, 23.

Croatia  327 T Ćapeta, ‘The Role of Courts in Economic Governance in the European Union’ in F J Carrera Hernández (ed), Towards a New Government of the Economy in the European Union? (Donostia, Aranzadi, 2018), 155–89. Tamara Ćapeta, ‘Croatia’ in Stefan Griller et al (eds), National Constitutions and EU Integration (Oxford, Hart Publishing, 2020 forthcoming). I Goldner Lang, The European Union and Migration: An Interplay of National, Regional, and International Law’ (2017) 111, AJIL Unbound, 509–13. I Goldner Lang, Z Đurđevic and M Mataija, ‘The Constitution of Croatia in the Perspective of European and Global Governance’ in A Albi and S Bardutzky (eds), National Constitutions in European and Global Governance: Democracy, Rights, the Rule of Law (Den Haag, TMC Asser Press, 2019 forthcoming). A Horvat Vuković, ‘U ime Ustava – materijalne granice promjene Ustava’ (In the Name of the Constitution – Substantive Limits to Constitutional Amendments) (2015) 65, Zbornik Pravnog fakulteta u Zagrebu, 481. Z Kühn, ‘Worlds Apart Western and Central European Judicial Culture at the Onset of the European Enlargement’ (2004) 52, American Journal of Comparative Law, 531. Z Kühn, ‘European Law in the Empires of Mechanical Jurisprudence: The Judicial Application of European Law in Central European Candidate Countries’ (2005) 1, Croatian Yearbook of European Law and Policy, 55. J Omejec, ‘Legal Framework and Case-Law of the Constitutional Court of Croatia in Deciding on the Conformity of Laws with International Treaties’ Report, European Commission for Democracy Through Law (Venice Commission), The Constitutional Court of Montenegro and OSCE (2009) CDL-JU(2009)035, www.venice.coe.int/webforms/documents/default.aspx?pdffile=CDL-JU(2009)035-e. T Pili, ‘Nove članice morat će se pridružiti i bankovnoj uniji’ (New Member States will also have to join the Banking Union), 3 December 2018. Available at: www.poslovni.hr/svijet-i-regija/nove-clanice-morat-c e-se-pridruziti-i-bankovnoj-uniji-347663. B Smerdel, ‘Ustav RH nakon ustavnih promjena 2010. Godine’ (Constitution of the Republic of Croatia after constitutional amendments of 2010), (2010) 1, Hrvatska pravna revija, 6. B Smerdel, ‘In Quest of a Doctrine: Croatian Constitutional Identity in the European Union’ (2014) 64(4) Zbornik pravnog fakulteta u Zagrebu, 513. D Šarin, ‘Javna narav i javna kontrola djelovanja Ustavnog suda Republike Hrvatske’ (‘The Public Nature and Control of the Activities of the Croatian Constitutional Court’), (2016) 4 Zbornik radova Pravnog fakulteta u Splitu, 929.

Case Law Constitutional Court of the Republic of Croatia (chronological order) U-I-6446/2010 of 7 July 2010 U-I-2057/2009 of 30 March 2011 U-I-295/2006 and others of 6 July 2011 (right to public gathering) SuS – 1/2013 of 14 November 2013 (constitutional referendum on the definition of marriage) U-VIIR-164/14 of 13 January 2014 U-I-1625/2014 and others, U-II-241/2015, U-II-383/2015, U-II-1343/2015 of 30 March 2015 (austerity measures) U-I-4405/2013 and U-II-3222/2014 of 31 March 2015 U-VIIR – 1159/2015 of 8 April 2015 (referendum on outsourcing) U-VIIR – 1158/2015 of 21 April 2015 (referendum on highways) U-I-2236/2017 of 6 June 2017 (Agreement with the Holy See)

Other Courts Judgment of the Court of Justice of the EU in case C-370/12 Thomas Pringle v Government of Ireland and Others, ECLI:EU:C:2012:756. Decision of the German Federal Constitutional Court on the constitutionality of German participation in the ESM and TSCG, 2 BvR 1390/12.

328  Tamara Ćapeta, Iris Goldner Lang

Legislation and Other Legal Sources (in chronological order) Constitution of the Republic of Croatia (NN 56/90, 135/979, 113/2000, 28/2001, NN 76/2010, 5/2014); translation into English, http://www.sabor.hr/sites/default/files/uploads/inline-files/CONSTITUTION_ CROATIA.pdf. Constitutional Decision on the Sovereignty and Independence of Croatia, NN 31/91. Declaration on the Establishment of the Sovereign and Independent Republic of Croatia, NN 31/91. Stabilisation and Association Agreement between the European Communities and their Member States, of the one part, and the Republic of Croatia, of the other part, signed in Brussels, 29 October 2001, COM (2001) 371 final, 9 July 2001. Screening Report: Croatia, Chapter 17 – Economic and Monetary Policy, 19 July 2006, p. 5. Available at: https:// www.esiweb.org/pdf/croatia_screening_report_17_hr_internet_en.pdf (last accessed on 28 December 2018). Prijedlog za utvrđivanje nacrta promjene Ustava Republike Hrvatske 2010. (Draft Proposal for the Constitutional amendments 2010). Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States [2011] OJ L 306/41. The Treaty between Member States of the European Union and the Republic of Croatia concerning the accession of the Republic of Croatia to the European Union, containing the Act on the Conditions of Accession and other relevant documents, OJ L 112 on 24 April 2012. National Report of the Constitutional Court of the Republic of Croatia based on the Questionnaire for the XVI Congress of the Conference of European Constitutional Courts, 2013. Proposal for a Directive amending Directives 2008/98/EC on waste, 94/62/EC on packaging and packaging waste, 1999/31/EC on the landfill of waste, 2000/53/EC on end-of-life vehicles, 2006/66/EC on batteries and accumulators and waste batteries and accumulators, and 2012/19/EU on waste electrical and electronic equipment’ COM (2014) 397 final. Reasoned opinion of the Croatian Parliament on Commission COM (2014)397 (n. 95) http://www.ipex. eu/IPEXL-WEB/dossier/files/download/082dbcc548cd77e10148e4f3bf0f181a.do (last accessed in May 2015). Reasoned Opinion on the Proposal for a Directive of the European Parliament and of the Council amending Directive 96/71/EC of the European Parliament and of the Council of 16 December 1996 concerning the posting of workers in the framework of the provision of services COM (2016) 128. Available at: http:// ec.europa.eu/dgs/secretariat_general/relations/relations_other/npo/docs/croatia/2016/com20160128/ com20160128_sabor_opinion_en.pdf (last accessed on 31 December 2018). Commission Communication, ‘New budgetary instruments for a stable euro area within the Union framework’ COM (2017) 822, final. Commission Communication, ‘A European Minister for Economy and Finance’ COM (2017) 823, final. Commission Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States, COM (2017) 824, final. Commission Proposal for a Regulation amending Regulation 1303/2013 laying down common provisions on European Funds, COM (2017) 826, final. Commission Proposal for a Council Regulation on the establishment of the European Monetary Fund, COM(2017) 827, final. Odluka o proglašenju Zakona o potvrđivanju Ugovora o stabilnosti, koordinaciji i upravljanju u ekonomskoj i monetarnoj uniji (Decision on the Enactment of the Law on Approval of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union), NN 1/2018. (electronically available at: https:// narodne-novine.nn.hr/clanci/medunarodni/2018_02_1_6.html; last accessed on 10 August 2018). Opinion of the European Central Bank of 6 April 2018 on Amendments to the Act on the Croatian National Bank and to the Act on the State Audit Office, CON/2018/17. Available at: https://www.ecb.europa.eu/ ecb/legal/pdf/en_con_2018_17_f_sign.pdf (last accessed on 28 December 2018). Odluka o donošenju Strategije za uvođenje eura kao službene valute u Republici Hrvatskoj (Decision on the strategy for euro as official currency in the Republic of Croatia), NN 43/2018, 11 May 2018. (electronically available at: https://narodne-novine.nn.hr/clanci/sluzbeni/2018_05_43_831.html; last accessed on 10 August 2018). ECB, Convergence Report, May 2018, pp 177–78. Available at: https://www.ecb.europa.eu/pub/pdf/conrep/ ecb.cr201805.en.pdf?ee1c3b309ded218fe2785c36ce4d65ba (last accessed on 31 December 2018).

Croatia  329 European Commission, Convergence Report, May 2018, p 63. Available at: https://ec.europa.eu/info/sites/ info/files/economy-finance/ip078_en.pdf (last accessed on 31 December 2018). Council Decision abrogating Decision 2014/56/EU on the existence of an excessive deficit in Croatia, 10000/17 ECOFIN 496 UEM 188, 12 June 2018. Statement on Bulgaria’s Path Towards ERM II Participation, 12 July 2018. The Statement has been issued by the euro area Member States, Denmark and ECB, in the presence of the Commission and the Bulgarian representatives, available at: https://www.consilium.europa.eu/en/press/press-releases/2018/07/12/ statement-on-bulgaria-s-path-towards-erm-ii-participation/# (last accessed on 27 December 2018). Letter to the Presidents of the Eurogroup and the Ecofin sent by the Bulgarian Minister of Finance and the Governor of the Bulgarian National Bank on Bulgaria’s path towards ERM II participation, 11119/18, ECOFIN 729 UEM 267, 13 July 2018. Available at: https://www.consilium.europa.eu/media/36125/ st11119-en18.pdf (last accessed on 27 December 2018).

330

13 Italy MONICA BONINI AND STEFANIA NINATTI

Abstract: Over time, EMU law and related instruments and measures have been implemented in the Italian legal order as European integrative steps. Even part of the European Commission’s reform proposals of 6 December 2017 could be implemented in the domestic order as further supranational developments. However, tensions exist between the latter and constitutional principles – especially ‘solidarity’ and regional economic and financial autonomy. Therefore, the legal debate suggests that parliament amends the current domestic legal framework regarding EMU law and related instruments and measures in order to rebuild the Italian social welfare model and to restore the political, economic and financial equilibrium between regional and central powers. Key words: Italian legal order – Italian constitutional principles – Italian counter-limits doctrine – Italian solidarity principle – Italian regional and local financial autonomy – Italian Internal Stability Pact – Italian budget equilibrium – Italian Constitution, Article 81– Italian Constitution, Article 117(1) – Italian Constitution, Article 119 – Italian centralised harmonisation of public accounts – Italian centralised coordination of public finance – Italian welfare model and deficit spending.

I.  Main Characteristics of the Italian Constitutional System and Constitutional Culture A.  Main Characteristics of the Italian Constitutional System The Italian Constitution (ItC) embodies many of the principles which took root in continental Europe between the two World Wars.1 It is enriched by a long list of rights, some peculiar to the ‘welfare state’. Fundamental liberties are guaranteed by a constitutional requirement that some matters are regulated by statutory acts and by declaring that some of these principles are the core of the Constitution that not even a constitutional law could amend. The organisation of the state is based on the unconditional recognition of the principle of democracy and on fundamental constitutional elements. These elements are: (1) a bicameral parliament, (2) considerable powers of the head of state, (3) some devices aimed at guaranteeing 1 Ex multis Giuseppe Branca, Alessandro Pizzorusso, Commentario alla Costituzione (Bologna, Zanichelli, 1975); Francesco Clementi, Lorenzo Cuocolo, Francesca Rosa, Giulio Enea Vigevani, La Costituzione italiana, commento articolo per articolo (Bologna, Il Mulino, 2018).

332  Monica Bonini and Stefania Ninatti a (limited) stability of the government, which is nonetheless accountable to the parliament, (4) a regional form of state and government, (5) stronger guarantees of independence of the judicial power from the executive, and (6) a Constitutional court (ICC), which is independent of parliament and in charge of constitutional review and adjudication. The Italian regional form of state features four types of territorial bodies: regions, provinces, metropolitan cities and towns.2 The ItC enumerates the areas in which the state has exclusive legislative powers, eg currency and the determination of the basic levels of civil rights protection and social services. All territorial bodies shall have revenue and expenditure autonomy and independent financial resources. The state shall allocate supplementary resources and measures to promote economic development along with social cohesion and solidarity, and to reduce economic and social imbalances. Additional forms and conditions of autonomy may be attributed to the regions by statute law (at the initiative of the region concerned, after consultation with local authorities, in compliance with several constitutional principles). Today, the Lower House confronts the request of additional autonomy submitted by three regions – Lombardia, Veneto and Emilia-Romagna.3 The legal debate regarding the latter requests emphasises that attributing additional autonomy to these three wealthy regions may increase financial and social inequality between northern and southern regions.4

i.  Constitutional Culture The implementation of the Constitution went hand in hand with the evolution of the political system. After a long and unsteady process of implementation, the need for constitutional reform has risen prominently in the political debate, yet the outcome has been characterised by continuous failure. Looking at the current situation the question is if the Constitution and the constitutional judgments are still relevant for the social and political life. The ItC is always at the centre of every political discussion. As regards the constitutional judgments, even if in a discreet way, they are of utmost importance for the political and social debate. The ICC’s articulation and protection of ‘supreme’ and ‘fundamental’ constitutional principles, including through its work as arbiter of disputes between the state and the regions, contribute significantly to the state’s assurance of the constitutional rule of law (as Article 2 TEU requires).

II.  Constitutional Foundations of Italian EMU Membership and Closely Related Instruments A.  Constitutional Foundations of EMU Membership i.  ‘General EU Membership Clause’ and EU Law Implementation Italian EU and EMU membership, as well as the implementation of related acts, are based on the same constitutional foundations. For decades, a broad interpretation of Article 11 ItC (originally 2 See Title V ItC. 3 www.temi.camera.it/leg18/temi/tl18_lautonomia_differenziata_delle_regioni_a_statuto_ordinario.html. 4 Daniela Mone, ‘Autonomia differenziata come mezzo di unità statale: la lettura dell’Art 116, 3 comma Cost., conforme a Costituzione’ (2019)1 Rivista AIC; Lorenza Violini, ‘L’autonomia delle regioni italiane dopo i referendum e le richieste di maggiori poteri ex Art 116, comma 3, Cost’ (2018) 4 Rivista AIC; Elisabetta Catelani, ‘Nuove richieste di autonomia differenziata ex Art 116 comma 3 Cost.: profili procedimentali di dubbia legittimità e possibile violazione di diritti’ (2018) 2 Osservatorio sulle fonti.

Italy  333 conceived for participation in the United Nations) served as the constitutional ‘door of access’ for Europe in the national system.5 Only in 2001 did the EU receive an express recognition in the legal order through new Article 117(1) ItC.6 According to this, ‘legislative power belongs to the State and the Regions in accordance with the Constitution and within limits set by EU law and international obligations’. The two theoretical cornerstones of Italian EEC, EC and EU membership that always pervaded the ICC’s elaborations are ‘limitations of sovereignty’ and ‘dualism’. The ICC recognised the principle of ‘supremacy of community law’ within the Italian legal system. Starting back in 1984 it established that the primacy of EU sources of law with direct effect must be guaranteed directly by the ordinary or administrative judge. If a conflict between an internal and an EU provision cannot be solved by means of interpretation, they must apply the EU norm, not the national one (‘non-application’). The principle of ‘supremacy of community law’ applies to internal provisions of both primary7 and constitutional level.8 Even referendums may not repeal or amend EU sources of law. The only exception to the principle can be identified in the violation of either fundamental rights or supreme principles of Italian constitutional system, ie the intangible ‘counter-limits’ to European integration.9 The ‘non-application’ principle led to a profound change within the legal system, the importance of which was perceived only later, thanks to some rather aggressive case law of the CJEU. This questioned the proper role of the ordinary judge. According to the ItC, judges are required to apply the law strictly. However, they are exceptionally allowed not to apply it in the fields of EU competence. This dichotomy breaks the general rule of a centralised review of constitutionality, with the ICC the only body endowed with the power to strike down statutory acts in conflict with the Constitution. However, a recent ICC decision foresees in an obiter dictum a possible exception to the recalled principle. In 2017, the ICC – while confirming that, in the case of conflict with a provision having direct effects, courts must apply EU law without referring the issue to the ICC – added that the ordinary judges must raise a question of constitutionality before it when a violation of fundamental rights deriving from EU law is at stake.10 In this way, fundamental rights protection remains at the core of the activities of the EU Member States’ Constitutional Courts.11 Regarding the EU law’s implementation within the legal order,12 Italy is often ordered by the CJEU to pay sanctions due to delayed compliance with EU directives. To remedy this situation, in the mid-1980s Italy decided to approve the ‘Annual EC Law’ with which all directives were implemented. Since 2012 it has been replaced by two statutory acts, the ‘European Delegation

5 Branca, Pizzorusso, Commentario alla Costituzione; Clementi, Cuocolo, Rosa, Vigevani, La Costituzione italiana, commento articolo per articolo. 6 Originally, Title V’s amendments aimed to transform Italy into a federal state: Luisa Torchia, ‘Regioni e federalismo amministrativo’ (2001) 2 Le Regioni, 257–66; Lorenzo Chieffi, Guido Clemente di San Luca, Regioni ed enti locali dopo la riforma del Titolo V della Costituzione: fra attuazione ed ipotesi di ulteriore revisione (Torino, Giappichelli, 2004); Luciano Vandelli, Franco Bassanini (eds), Il federalismo alla prova. Regole, politiche, diritti nelle Regioni (Bologna, Il Mulino, 2012). 7 ECLI:IT:COST:1984:70. 8 ECLI:IT:COST:1987:399. 9 For the ICC’s two theoretical cornerstones, the direct application of EU legal sources and related issues, see ­judgments nos 183/73, ECLI:IT:COST:1973:183; 232/1975, ECLI:IT:COST:1975:232; 170/84, ECLI:IT:COST:1984:170; 384/94, ECLI:IT:COST:1994:384; 94/95, ECLI:IT:COST:1995:94; 348–49/2007, ECLI:IT:COST:2007:348 and ECLI:IT: COST:2997:349; 80/2011, ECLI:IT:COST:2011:80; 102–03/2008, ECLI:IT:COST:2008:102 and ECLI:IT:COST:2008:103, and recently 269/2017, ECLI:IT:COST:2017:269. 10 ICC, judgment no 269/2017, ECLI:IT:COST:2017:269, para 5.2. 11 Augusto Barbera, ‘La Carta dei diritti: per un dialogo fra la Corte italiana e la Corte di giustizia’ (2017) 4 Rivista AIC. 12 Marta Cartabia, Marilena Gennusa, Le fonti europee e il diritto italiano (Torino, Giappichelli, 2009).

334  Monica Bonini and Stefania Ninatti Statute Law’ and ‘European Statute Law’. With the first of these the parliament delegates to the government the power to adopt legislative decrees to implement EU provisions (implementation by means of secondary sources of law, ie government regulations, may furthermore be solicited). With the second, the parliament itself amends or repeals Italian statutory acts which do not comply with EU law.13

ii.  Constitutional Foundations of Italian EMU Membership: Relevant Political and Legal Aspects In 1998 the European Council decided that Italy fulfilled the EMU accession criteria.14 Politically, the admission was welcomed as a fundamental step of the Italian participation to the EU.15 Legally, the EMU16 represented a further European integration step. That is why it has been grounded on the constitutional ‘general EU membership clause’, Article 11 ItC. For the same reason the parliament decided in 1998 not to amend the ItC to make it consistent with new integrative steps. Both Houses adopted this same position also in 1992, despite the importance of the matters foreseen in the EU Treaty. As a consequence, the Maastricht Treaty and all EMU-related intergovernmental treaties were ratified according to the procedure foreseen for any treaty. According to the ItC, parliament shall authorise by law the ratification of any treaty which has political importance, has financial implications or requires the adoption of statutory acts. The head of state shall ratify these same treaties only once authorised by the Houses. Further treaties amending the existing supranational ones and the EMU intergovernmental acts shall be ratified in the same manner. Before and after the admission, the parliament adopted several statutory acts to comply especially with the Stability and Growth Pact (SGP).17 Only in 2012 both Houses amended the Constitution in order to implement Article 3(2) TSCG in the legal order. One crucial development of the new legal framework concerns the strong centralisation of financial decision-making power at national level. Despite this result, none of the Italian governments since 2011 ever raised any doubt about the membership in the eurozone, principally because EU and non-EU measures adopted until 2017 were necessary to avoid Italian sovereign default.18 Recently legal scholars19 have highlighted 13 Marta Cartabia, Lorenza Violini, ‘Le norme generali sulla partecipazione dell’Italia al processo normativo dell’Unione europea e sulle procedure di esecuzione degli obblighi comunitari. Commento alla legge 4 febbraio 2005, no 11’ (2005 ) 4 Le Regioni, 451–75. 14 Dec no 98/317/CE: Carlo Secchi, Verso l’Euro: l’Unione economica e monetaria motore dell’Europa unita, 2nd edn (Venezia, Marsilio, 1998). 15 On 16 May 1996 President of the Republic Oscar Luigi Scalfaro appointed Romano Prodi as Prime Minister. His EU-friendly party coalition governed Italy from 1996 until 1998. On 9 October 1997 Fausto Bertinotti, leader of the Italian communist party, announced his intention to vote against the ‘Financial Statute Law’ presented by Prodi’s Government. During those years, this Statute Law was one of the most significant acts to be voted before the ‘Annual Budget Statute Law’. Since 1996/97, a few members of Bertinotti’s party were in both Italian Houses and supported Prime Minister Prodi, even if none of them served as ministers of the governing coalition. Given the political importance of Bertinotti’s decision, Prime Minister Prodi decided to resign, but the Head of State refused to accept his decision. On 1 May 1998 Italy became an EMU member. At a national level, the admission also had a negative consequence: Bertinotti withdrew confidence, as prescribed by Art 94 ItC. Under the latter, resignation is a legal consequence of confidence withdrawal. Prodi’s government lost its parliamentary majority and had to resign. 16 Orlando Roselli (ed), Europa e banche centrali (Napoli, Edizioni Scientifiche Italiane, 2004). 17 Luca Antonini, ‘La “Caporetto” del federalismo fiscale’ (2015) 71/3 Quaderni di ricerca sullartigianato, 361–74. 18 Raffaele Bifulco et al, Crisi economica e trasformazioni della dimensione giuridica: la costituzionalizzazione del pareggio di bilancio tra internazionalizzazione economica, processo di integrazione europea e sovranità nazionale (Torino, Giappichelli, 2013). 19 Antonini, La “Caporetto” del federalismo fiscale’, and ‘Armonizzazione contabile e autonomia finanziaria degli enti territoriali’ (2017) 1 Rivista AIC; Guido Rivosecchi, ‘Parlamento e sistema delle autonomie all’ombra del Governo nelle trasformazioni della decisione di bilancio’ (2012) 1 Rivista AIC and ‘Finanza delle autonomie speciali e vincoli di sistema’ (2016) 1 Rivista AIC.

Italy  335 that the new domestic framework conflicts with constitutional principles (eg, the ‘solidarity principle’20) and with regional and local political decision-making in financial matters.21 Especially harsh crisis management measures, the ‘Internal Stability Pact’22 and harmonisation of public accounts and coordination of public finance (today vested in the state)23 had negative consequences for the Italian Social Welfare model.24 It was put in peril by severely weakening the financial backing covering social rights’ expenses at local level (eg regarding local health and educational services, mostly in middle and southern Italy).25

B.  Relevance of Constitutional Provisions on International Law and Treaties Several constitutional provisions on international law and treaties are relevant also for EMU participation. Articles 10(1) and 11 ItC allow the implementation of unwritten and written international law.26 Article 11 ItC is the ‘general EU membership clause’ covering also EMU membership. It allows the implementation of EU law and EMU related measures (adopted inside the EU order) under the ‘EU law supremacy principle’. The new Article 117(1) ItC explicitly introduces EU law in the legal system. Articles 72(4), 80 and 87 govern the ratification process of treaties. These same provisions also allowed the adoption and implementation of EMU-related intergovernmental acts. Under this constitutional framework, the government takes part in the political negotiations of any treaty. Then, the ratification procedure involves the parliament and the head of state. The ratification is a presidential act. Only in extraordinary circumstances may the president refuse to ratify an international act he would consider to be inconsistent with the ItC. Articles 72(4), 80 and 87(8) ItC determine the procedure of implementing written international law in the legal order. The regular procedure27 for consideration and approval by both Houses is always followed in the case of statutory drafts on the ratification of treaties and the approval of budgets and accounts. Both Houses must authorise by statute the ratification of treaties that have political importance, financial implications or require the adoption of statutory acts. The president shall ratify these treaties only once authorised by the Houses.

20 Camilla Buzzacchi, La solidarietà tributaria. Funzione fiscale e principi costituzionali (Milano, Giuffrè, 2011); Stefano Giubboni, Solidarietà, in Politica del diritto (Bologna, Il Mulino, 2012), 525–55. 21 Arts 117(3) ItC and 119 ItC: Camilla Buzzacchi, ‘Equilibrio di bilancio versus autonomie e “Stato sociale”’ (2014) 1 Amministrare, 49–92; Antonio Brancasi, ‘L’autonomia finanziaria degli enti territoriali: note esegetiche sul nuovo Art 119 Cost’ (2003) 1 Le Regioni, 41–115. 22 Domenicantonio Fausto, ‘La perequazione nell’attuazione dell’Art 119 della Costituzione’ (2008) 1 Rivista economica del Mezzogiorno, 59–82; Guido Rivosecchi, ‘Il coordinamento della finanza pubblica tra patto di stabilità, patto di convergenza e determinazione dei fabbisogni standard degli enti territoriali’ (2012) 1 Rivista AIC; Flavio Guella, ‘Il patto di stabilità interno, tra funzione di coordinamento finanziario ed equilibrio di bilancio’ (2013) 3 Quaderni costituzionali, 585–616. 23 Antonio Brancasi, ‘Il coordinamento della finanza pubblica nel federalismo fiscale’ (2011) 2 Diritto pubblico, 451–82; Antonio Brancasi, ‘L’autonomia finanziaria degli enti territoriali di fronte ai vincoli europei ed alla riforma costituzionale sul “pareggio di bilancio” ’ (2014) 1–2 Le Regioni, 49–80. 24 Ines Ciolli, Le ragioni dei diritti e il pareggio di bilancio (Rome, Aracne, 2013). 25 Antonini, ‘La “Caporetto” del federalismo fiscale’ and ‘Armonizzazione contabile e autonomia finanziaria degli enti territoriali’; Marta Cartabia, Nicola Lupo, Andrea Simoncini, Democracy and Subsidiarity in the EU: National Parliaments, Regions and Civil Society in the Decision-making Process (Bologna, Il Mulino, 2013); Rivosecchi, ‘Il coordinamento della finanza pubblica tra patto di stabilità, patto di convergenza e determinazione dei fabbisogni standard degli enti territoriali’ and ‘Finanza delle autonomie speciali e vincoli di sistema’. 26 Tullio Scovazzi, Maurizio Arcari, Diritto internazionale e diritto interno (Milano, Giuffrè, 2015); Tullio Scovazzi, Corso di diritto internazionale. Parte II: trattati, norme generali, adattamento (Milano, Giuffrè, 2015). 27 Both Houses must discuss and vote statutory acts in significant matters listed in Art 72(4) ItC.

336  Monica Bonini and Stefania Ninatti Regarding the technique adopted to implement written international law, a theoretical difference distinguishes non-self-executing and self-executing international acts. Non-self-executing international acts are implemented by adopting domestic legal acts (‘ordinary execution’). After ratification, the parliament adopts one or more statutory acts to guarantee the respect of all international obligations deriving from the international act. Thus, the parliament may choose a specific act (eg, a constitutional law instead of a statute) in order to assure that the legal order respects all treaty’s requirements. This technique implements every single international rule enshrined in the treaty in one – or more – domestic legal acts. It aims to avoid the risk that even single rules enshrined in forthcoming national acts may amend or repeal single international rules implemented in the legal order. More often, when the Houses authorise the ratification of an international act, they adopt at the same time an ‘execution order’, ie a single domestic provision, which usually reads ‘full and entire execution is given to the following treaty’. This technique implements in the legal order the whole international act as such. Only the first mechanism guarantees the respect of every single international rule enshrined in a given treaty.

C.  Rules Governing EMU Closely Related Instruments Inside the EU Legal Order Closely EMU-related instruments adopted inside the EU legal order are based on the constitutional provisions and principles and on the techniques explained above. Even before the 2012 and 2016 ItC amendments, the government had been submitting the national budget and accounts every year to both Houses. Even today governmental statutory drafts on budget and accounts need parliamentary approval (further details about the new Italian budget process are given below). The new framework, giving basis to EMU-related acts, centralised local powers in budgetary matters (see below).

i.  EU Stability and Growth Pact and Internal Stability Pact, Six Pack, Two Pack, European Semester Over time, social welfare expenditure has been financed through deficit spending.28 Italy started to comply with the rules on debt deficit levels of the primary EU law and the SGP legislation of 1997 from the late 1990s.29 Then, to ensure healthy public finances, the parliament adopted the ‘Public Accountancy and Finance Statute law’ in 200930 and the ‘Internal Stability Pact’31 in 2010. The latter Pact reinforces the SGP by ensuring that every regional and local government respects SGP constraints.

28 Giovanni Bognetti, ‘Costituzione e bilancio dello Stato. Il problema delle spese in deficit (note ispirate dalla lettura di un libro di G. Rivosecchi’ (2009) 3 Nomos, 17–74. 29 Alberto Quadrio Curzio, ‘Al di là del Patto: che cosa serve per la stabilità e la crescita’ (2004) 415/5 Il Mulino, 953–964. Gianni Bonvicini, Flavio Brugnoli, Il Fiscal Compact (Roma, Nuova Cultura, 2012); Mario Pilade Chiti, Alessandro Natalini, Lo spazio amministrativo europeo. Le pubbliche amministrazioni dopo il trattato di Lisbona (Bologna, Il Mulino, 2012); Monica Bergo, ‘Pareggio di bilancio ‘all’italiana. Qualche riflessione a margine della legge 24 dicembre 2012, n. 243 attuativa della riforma costituzionale più silenziosa degli ultimi tempi’ (2013) 6 Federalismi. 30 The parliament adopted only afterwards Constitutional Law no° 1/2012 (and Statute law no° 243/2012) to implement the balanced budget in the national legal order. 31 Adopted for the first time with Statute Law no° 220/2010 (i.e. the ‘2011-2013 Stability Statute Law’).

Italy  337 The ‘Internal Stability Pact’ and several other statutory acts weakened regional decisionmaking in financial matters.32 Statute Laws nos 183/2011 and 228/201233 centralised decisions in these same areas. Statute Law no 164/2016 (amending Statute Law no 243/2012) ensured that harmonisation of public accounts and coordination of public finance are vested in the state.34 Centralisation of such matters should ensure respect of supranational constraints in these same fields. Nonetheless, it interferes with the financial autonomy of regional and local bodies. Furthermore, this evolution puts in peril also the Italian social welfare model – mostly in middle and southern Italy – by severely weakening the financial backing covering social rights’ expenses at local level.35 Italy also complied with the Six Pack and Two Pack legislation. This is even though, even before the joining the EMU, former Prime Minister Romano Prodi expressed doubts regarding the SGP. Nevertheless, he was convinced that it was important for the EMU project as such. Neither the government nor either House discussed in detail (or called into question) any open issue concerning these measures. In 2011, the only concern was saving Italy from sovereign default. Today, legal scholars and members of parliament are interested in discussing decentralisation of budgetary decision-making, new models of macroeconomic surveillance36 and less rigid assessment criteria on public indebtedness.37 The ‘European Semester’ is today enshrined in the budgetary process.38 Several acts reflect this change. Statute Law no 196/2009 (as amended firstly by Statute Law no 39/2011 to ensure compliance with the new timing of the ‘European Semester’, and then by Statute Law no 163/201639) regulates accounting and public finance; Constitutional Law no 1/2012 and Statute Law no 243/2012 regulate the balanced budget, the governmental debt sustainability, the Italian Fiscal Council and other significant related issues. Statute Law no 243/2012 (as amended by Statute Law no 164/2016) strengthens coordination of public finance. This framework introduces procedures to harmonise public accounts and to coordinate public finance at all territorial levels in order to coordinate every domestic budget decision with those adopted under the ‘European semester’. However, today legal scholars stress that this framework contravenes several constitutional principles.40

32 Francesco Bilancia, ‘Crisi economica e asimmetrie territoriali nella garanzia dei diritti sociali tra mercato unico e unione monetaria’ (2014) 2, Rivista AIC. 33 Francesco Sucameli, ‘Il patto di stabilità interno fra politica e diritto’ (2014) 2 Quaderni costituzionali, 407–08. 34 Under new rules, the state shall directly support and finance regional public activities and services only in the field of civil and social rights: Silvio Gambino, Diritti sociali e crisi economica: problemi e prospettive (Torino, Giappichelli, 2015). 35 Even before recent events, legal scholars reflected upon the Italian regional model and the respect of fundamental rights: ex multis Massimo Luciani, ‘I diritti costituzionali tra Stato e Regioni (a proposito dell’art. 117, 2, lett. m), della Costituzione)’ (2002) 3 Politica del diritto, 345–60; Silvio Giubboni, Diritti sociali e mercato (Bologna, Il Mulino, 2003). 36 Ie one grounding in a more flexible evaluation of Member States’ economic and budgetary policies; Guido Rivosecchi, L’indirizzo politico-finanziario tra Costituzione italiana e vincoli europei (Padova, CEDAM, 2007); Stelio Mangiameli, (ed), The Consequences of the Crisis on European Integration on the Member States (Heidelberg, Springer, 2017). 37 Rivosecchi, L’indirizzo politico-finanziario tra Costituzione italiana e vincoli europei and ‘Parlamento e sistema delle autonomie all’ombra del Governo nelle trasformazioni della decisione di bilancio’; for today’s parliamentary debate see esp www.camera.it/leg18/1099?shadow_organo_parlamentare=2805 and www.senato.it/3511?shadow_organo=1180005. 38 As enshrined in the budgetary process: Buzzacchi, La solidarietà tributaria. Funzione fiscale e principi costituzionali; Andrea Morrone, La Costituzione finanziaria: la decisione di bilancio dello Stato costituzionale europeo (Torino, Giappichelli, 2015); Maria Vittoria Lupò Avagliano, Il bilancio dello Stato tra ordinamento nazionale e vincoli europei (Torino, Giappichelli, 2017). 39 Two governmental decrees had significant importance for this statute law: see d.lgv. nos 93/2016 and 90/2016. 40 Luca Antonini, ‘L’autonomia finanziaria delle Regioni tra riforme tentate, crisi economica e prospettive’ (2014) 4 Rivista AIC; ‘La Corte costituzionale a difesa dell’autonomia finanziaria: il bilancio è un bene pubblico e l’equilibrio di bilancio non si persegue con tecnicismi contabili espropriativi’ (2018) 1 Rivista AIC and ‘Armonizzazione contabile e autonomia finanziaria degli enti territoriali’.

338  Monica Bonini and Stefania Ninatti According to current rules, financial planning roots in the following pillars: a.

the budget process respects a new timing in order to make all different levels of government pursue financial goals and adopt budget decisions with full respect of EU decisions assumed under the ‘European semester’ framework; b. the new ‘document of public economy and finance’ (DEF) is an important part of the national budget process. It reports on the planning, management and other estimations concerning income and expenditure of central government, local authorities and social security authorities, and methods adopted to monitor public finance and financial decisions’ trends; c. the ‘functional reclassification’ of the national budget matches eg ‘missions’ and ‘programmes’ with specific performance indicators;41 d. quantitative and qualitative public spending undergo a stronger control; e. renewed methods of measurement and evaluation of the public policies results; f. new national budgetary decisions procedures for complying with the ‘Treaty on Stability, Coordination and Governance in the Economic and Monetary Union’ (TSCG, Fiscal Compact, or FC).

ii.  Parliamentary Budget Office Constitutional Law no 1/2012 assigns the tasks of analysing and monitoring the developments in public finance and the evaluation of compliance with budgetary rules to an independent body. Statute Law no 97/2013 implemented Directive 2011/85/EU in the Italian legal order.42 Accordingly, the government must coordinate the implementation of the Directive with the help of an independent body which will analyse and monitor public finance developments and evaluate its compliance with budgetary rules.43 The independent body is today the ‘Parliamentary Budget Office’ (UPB).44 The UPB enjoys full autonomy and independence, and consists of three members (one of whom is the chairman), appointed by agreement between the presidents of the two Houses. Members must be chosen from a list of 10 individuals of renowned independence and proven expertise in the field of economics and public finance at national and international levels. The list must be filed by the parliamentary Committees on Public Finance. Their mandate is not renewable and lasts for six years. All rules concerning the UPB entered in force in 2013.45 Members were selected in 2014. For recent events on the UPB’s influence on the government, see below.

iii.  Macroeconomic Budgetary Forecasts Before the establishment of the UPB, the Minister of Economy and Finance (MEF) was responsible for macroeconomic and budgetary forecasts. Article 2(4) of Statute Law no 39/2011 (which 41 Every ‘mission’ and/or ‘programme’ must be voted on by the parliament. 42 Even if the statutory draft of the ‘Annual EU Statute Law 2012’ already aimed to implement Directive 2011/85/EU. As usual, the Italian government adopted a legislative decree. 43 In 2012, it was clear that the former Statute Law no 196/2009 on public finance and accounting had not yet created an independent authority in the same field: after the 2012 constitutional amendments it could be determined. Regarding these issues see also the European Commission, Interim Progress Report on the implementation of Council Directive 2011/85/EU. 44 See Statute Law no 243/2012. The name is due to the fact that the UPB is situated in the parliament building. 45 Andrea Razza, ‘L’Ufficio parlamentare di bilancio nella nuova governance italiana della finanza pubblica’ (2013) 4 Rivista giuridica del Mezzogiorno, 893–902; Andrea Vernata, ‘L’Ufficio parlamentare di bilancio: tra virtualità ausiliarie e soggettività euro-unitaria’ (2017) 2 Diritto pubblico, 469–514.

Italy  339 amended Statute law no 196/2009) introduced the ‘separate methodological note’. This note details the assumptions adopted to define macroeconomic forecasts. It is part of the DEF. Until 2013, the MEF issued public reports on all assumptions underpinning the macroeconomic and budgetary forecasts and the results of their ex-post evaluation. The UPB carries this responsibility since 2013.

iv.  Macroeconomic Imbalances Procedures Since 2009, the reforms this chapter sums up marked progressively the Italian budgetary process (especially national indebtment, flexibility and ex-post controls of national, regional and local budgets).46 In 2011–13 the Monti government made serious efforts to comply with EU rules in related matters47 and to face the risk of sovereign default. The Conte government, in charge since 2018, seems not to share the same political programme on debt reduction, tax reform and the fight against tax evasion. In December 2018 the EU Commission reached a deal with Italy which avoided the excessive deficit procedure. In April 2019 the EU Commission received the 2020 DEF. As in 2018, it does not comply with EU rules on the excessive deficit.

v.  Medium-term Budgetary Objective Under the revised constitutional and statutory framework, harmonisation of public accounts and coordination of public finance are today vested in the state. Accordingly, several rules discipline the compliance with the Medium Term Objective (MTO) and the path towards it by adjusting the structural budget positions at a specific gross domestic product (GDP) rate per year. Especially under Article 3(3) and (5) of Statute Law no 243/2012 the budget equilibrium is achieved if: a. b. c.

the structural balance is equal to the MTO, or if the structural balance deviates from the MTO only up to 0.5 per cent of the GDP, or if the structural balance ensures that the adjustment path towards the MTO will be respected even if correction mechanisms must be adopted (eg, to face exceptional events), or if d. the structural balance deviates from the adjustment path towards the MTO less than the level that EU rules value as important (ie up to minus 0.5 per cent in relation to the pursued aim). Since 2009 the government has updated in this light the ‘Stability Programme’ to be presented to the Council and the Commission.48 The government transmits49 an updated scheme of the Programme to both Houses and to the Permanent Conference for the Coordination of Public Finance. It must include medium-term prospects of Italian economic policy and guidelines for related implementation policies. The ‘Stability Programme’ and the ‘National Reforms Programme’ are part of the first section of the DEF. EU institutions receive both acts in April, after the parliamentary debate on the planning, management and reporting estimations concerning

46 Antonio Brancasi, ‘Bilancio (equilibrio di)’ in Enciclopedia del diritto, Annali, VII (Milano, Giuffrè, 2012) ad vocem. 47 After 2010 Italian public debt rose significantly. The country experienced strong macroeconomic imbalances, which the Commission wanted to be addressed. 48 See Art 9 of Statute Law no 196/2009, as amended by Statute Law no 39/2011. 49 Within not less than 15 days prior to the date of submission agreed at the European level.

340  Monica Bonini and Stefania Ninatti the following year’s income and expenditure of all national, regional and local subsectors.50 According to the first estimates for the 2020 DEF: a.

2019’s deficit to GDP will increase to 2.4 per cent (only in 2022 will the deficit to GDP fall to 1.5 per cent); b. the 2019 economic growth forecast must be lowered from plus 1 per cent to only plus 0.1 per cent (while for 2021–24 it may increase progressively from plus 0.2 per cent to plus 0.8 per cent); c. in 2022 the Italian debt may reach the 129 per cent threshold.51 Article 5 of Statute Law no 42/2009 and Articles 33–37 of Legislative Decree no 68/2011 govern the ‘Permanent Conference for the Coordination of Public Finance’. It is headed by the prime minister. Its members represent several governmental levels. They all help to define the objectives of public finance, to monitor and control the financial system of regional and local authorities and the implementation of fiscal federalism. According to Article 12 of Statute Law no 196/2009, the government must also issue every year a ‘Report on the Economy and Public Finance’. The report must be submitted to parliament by 15 April each year. The government must inform both Houses about, inter alia, the EU’s position regarding the updated version of the ‘Stability Programme’.52 Even every region must comply with the MTO’s domestic legal framework. According to Article 7 of Legislative Decree no 149/2011, the government may sanction regional authorities and other public administrations if they do not respect the ‘Internal Stability Pact’. Violations of the latter may indeed have severe consequences, because they may imply the responsibility of the Italian state, not only of the regions. According to Statute Law no 234/2012, the state may exercise a retaliatory action against regions responsible for EU infringement proceedings.53

vi.  Euro Plus Pact and Europe 2020 Strategy At the time of the ‘Euro Plus pact’ negotiations,54 institutions were already worried about the danger of sovereign default. Therefore, the pact did not encounter any difficulty in Italy. Only a few months later the Berlusconi government adopted urgent measures for financial stabilisation (Decree no 98/2011, transposed in July 2011 in Statute Law no 111/2011). Then, in order to comply with the recommendations of the ‘National Reform Programme and the Stability Programme’, the parliament transposed the ‘Development Decree’ no 70/2011 in a statutory act (no 106/201155). Regarding the ‘Europe 2020 Strategy’, it must be recalled that the ‘Italian Insurance Agency’ (INPS) is the independent body monitoring Italy’s compliance with the Strategy’s goals. Against this technical background, recent events seem relevant here. In July 2018 the Conte 50 ie national government, local authorities and social security authorities. 51 Given that these forecasts could change, see for further details www.mef.gov.it/inevidenza/article_0399.html. 52 With regard to the harmonisation of the Italian public administration’s budget systems, Art 4 of Legislative Decree no 91/2011 foresees that to achieve the quality and transparency of public finance data, as well as the improvement in the capacity of connection of the budgets of all the levels of government with the European System of accounting records, the public administration must adopt a common plan of accounts (among other measures and instruments adopted to ensure compliance with Regulation (EC) no 479/2009 of the Council on the application of the Protocol on the excessive deficit procedure. 53 Regarding the respect for balance between revenue and expenditure: ex multis see the cases Campania and Friuli-Venezia Giulia in ICC nos 70 and 115/2012 and ICC no 8/2013, ECLI:IT:COST:2012:115 and ECLI:IT:COST:2013:8. 54 Berlusconi IVth government. 55 Regarding inter alia administrative simplification measures for small and medium-sized enterprises and simplification of tax measures see again Statute Law no 106/2011.

Italy  341 government56 adopted measures which seriously impacted the Strategy. The ‘Dignity decree’ (no 87/2018, transposed in Statute Law no 96/201857) foresaw rules concerning, among others, ‘time-limited contracts’. The new provisions aimed to replace them with ‘long-term contracts’. However, entrepreneurs did not substitute former contracts with the new ones. They fired workers and hired new personnel with ‘time-limited contracts’. Already in summer 2018, the technical assessment regarding this decree issued by INPS (and verified by the General Accounts Office58) estimated that, because of the recalled mechanism, about 8,000 work places would be lost.59 The Minister of Labour and other parliamentary members belonging to the Five-Stars Movement asked INPS president Tito Boeri to resign because of its assessment. In 2018, despite INPS’s technical assessment, the decree breaking the Strategy was anyway transformed into a statutory act. Today, INPS and the National Institute for Statistics (ISTAT) monitor developing trends in the area.

D.  Rules Governing EMU Closely Related Instruments outside the EU Legal Order The most relevant impact on the Italian order derives from the constitutional amendments adopted to implement the FC. In Italy, the procedures concerning the amendment of Article 136(3) TFEU and the implementation of the FC were combined with one concerning the ESM.

i.  European Stability Mechanism As for the ESM Treaty, Italy’s risk and worries about a sovereign default were present at the time of its negotiation. Thus, the treaty ratification did not encounter any political difficulty. The Italian parliamentary and public debate focused on the ESM as an instrument apt to reduce the danger of Italy’s sovereign default. In 2012 the Monti government adopted all necessary measures to fully implement the ESM Treaty in the domestic legal order.

ii.  Treaty on Stability, Coordination and Governance in the Economic and Monetary Union Implementation of the TSCG must be considered in a specific context. Italian legal scholars often highlighted that, especially from the late 1990s, the national budgetary process revealed negative aspects of the relationship between government and parliament. According to Article 81 ItC (before and after the FC’s implementation), parliament must control governmental economic and financial choices. On the other hand, such control must not force the government to adopt strong procedural remedies to face parliamentary stonewalling – as often happens.60 Ratification of the FC did not encounter any political difficulty. At that time Italy still faced a serious risk of sovereign default. The FC was crucial to confront this danger. Procedurally, it was 56 Prime Minister Giuseppe Conte was appointed on 1 June 2018 by President Sergio Mattarella. 57 Adopted under Art 77 ItC. 58 www.rgs.mef.gov.it/Documenti. 59 Concerning the technical assessment see Boeri’s hearing on 19 July 2018, Joint Parliamentary Commissions for Finances and Labour, www.camera.it/leg18/1132?shadow_primapagina=7835. 60 Massimo Luciani, ‘Costituzione, bilancio, diritti e doveri dei cittadini’ (2012) 6 Questione giustizia, and the Prodi case (fn 15).

342  Monica Bonini and Stefania Ninatti ratified as any other treaty. The parliamentary authorisation to ratify it – as the one concerning the ESM – was joined in both Houses with other procedures regarding amendment of Article 136(3) TFEU. To comply with Article 3(2) FC (the balanced budget rule), parliament amended Article 81 ItC. The latter is the constitutional provision on the annual national budget statute law. Rather than the balanced budget rule, new Article 81 ItC introduced an ‘equilibrium budget rule’.61 Constitutional Law no 1/2012 amended not only Article 81 ItC, but also Articles 97, 117 and 119 ItC. It was implemented in the legal order by Statute Law no 243/2012 (then amended by Statute law no 164/2016). It is important to recall that all rules enshrined in Statute Law no 243/2012 represent constitutional parameters for all forthcoming statutory acts and, especially, for those concerning national budgeting. The government may take on debt only as determined by Statute Law no 243/2012. Moreover, an ‘Annual Budget Statute Law’ breaking Statute Law no 243/2012 (as amended in 2016) would indirectly break new Article 81 ItC. New Article 81 ItC has had a significant impact on the Italian financial order. Today it provides that the state shall issue public bonds only to renew already existing or short maturity ones. Only two exceptions allow the issuing of more public bonds. First, there must be exceptional circumstances (eg, serious recession, economic slump or national emergency). The issuing of such bonds must be authorised by both Houses, with absolute majority. Secondly, more bonds may be issued only as anti-cyclical measures (eg, to counter a negative business or trade cycle, negative growth rate, a fall in public/government revenue, an increase in public expenditure related to social security – such as unemployment benefits, welfare payments, etc). Before the implementation of the FC (and of the Euro Plus pact), to confront such events the Italian Government usually took on debt, cut the health and welfare expenditure or increased taxation. According to new Articles 97, 117 and 119 ItC, regional and local governments may issue debt only to finance new investments (ie, to purchase goods – real assets – on long term). Furthermore, they may get into debt only if other public bodies on their local territory achieve a cash surplus (ie a balance of payments surplus). Even in such circumstances, local decisions must respect the economic, financial and fiscal policies of the national government. Given that after Statute law no 164/2016 (which amended Statute Law no 243/2012), harmonisation of public accounts and coordination of public finance are vested in the state, related powers on regional and local level were lost. Against this background, it seems important to briefly describe the new national budget process. a.  The New Italian Budget Process Today, the ‘Annual Budget Statute Law’ grounds in several rules which set up the national budget process. Statute Law no 196/2009 (as amended by Statute Law no 39/2011) disciplines the tools which outline part of the actual budgetary procedure. Statute Law no 243/2012 (as amended by Statute law no 164/2016) implements in the legal order the constitutional amendments compliant with Article 3(2) FC. Statute Law no 164/2016 (amending Statute Law no 243/2012) ensures that harmonisation of public accounts and coordination of public finance are vested in the state.62 61 In December 2012 both Houses approved with high majorities new Art 81 ItC. Only a few parliamentary members believed that by ratifying it Italy would lose financial sovereignty: ‘banche dati/dibattiti in testo integrale’, www.camera.it, and ‘archivio storico’, www.senato.it. 62 And the Euro Plus Pact.

Italy  343 Under Article 7 of Statute Law no 39/2011 public revenues (of all public administrations) and budgetary expenditure must be adopted by using the ‘Economic Planning Method’. The latter must be put into practice as follows: a. by 10 April of each year the government presents the DEF to both Houses, ie a report on national economy and finance, grounding in three main pillars: i the first pillar aims to strengthen the SGP by introducing provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit. It introduces the ‘Stability Programme Scheme’. The latter points out the guidelines of the financial decisions to be adopted in order to respect the European rules on public deficit reduction and on a balanced budget; ii the second pillar introduces a first estimation of the dimensions of the public finance according to existing rules and policies; iii the third one, according to EU and FC rules, concerns the ‘National Reform Programme’. It points out every reform reducing the macroeconomic imbalance and the economic gap which weigh upon competitiveness (ie all the corrective measures which may concern the economic system); b. by 30 April of each year the ‘Stability Programme Scheme’ and the ‘National Reform Program’ must be presented to the Commission and the Council; i by 20 September of each year the government drafts a document which updates the DEF, and which aims to adopt the Council’s recommendations in the budget process (ie surveillance budgetary positions and surveillance and coordination of economic policies); ii by 15 October of each year the government presents the draft of the ‘Stability Statute Law’, which amends – if necessary – the existing revenue and expenditure provisions. It must be amended to correct the economic policy’s goals grounded in the budget approved along the year before (and other acts, to be approved at the end of December); iii by 15 October of each year the government must present the draft of the ‘Annual Budget Statute Law’, which concerns only the forthcoming year. This statutory act consists of two parts: 1 the first providing for the budget according to rules already in force; 2 the second concerning the annual balance sheet (revenues and expenditure). Other significant steps of the process are: a. b. c. d. e. f.

the year’s budget reports of the economic and financial needs of every ministry; the long-term budget (which lasts for three years and must respect the DEF); the draft balance of the budget to be adopted by 30 June of each year; all other statutory acts linked to the budget proceeding (which must be adopted by the subsequent January as foreseen by the DEF); all other specific programming tools necessary for the local administrations, or for all public administrations other than the central one; financial and economic statements.

Furthermore, as recalled above, according to new Article 97 ItC all Italian public administrations must respect EU rules and constraints regarding budgetary balance and debt-sustainability. Under Article 117(2) ItC, the harmonisation of public accounts is listed under the legislative powers of the state. Under Article 119 ItC, the financial autonomy of municipalities, metropolitan

344  Monica Bonini and Stefania Ninatti cities and regions regards first, the equilibrium of their budget, and second, their cooperation with the national institutions, which must ensure compliance with the economic and financial EU constraints. Furthermore, under Article 119 ItC loan repayment plans must be determined excluding any guarantee issued by the state. Other details concerning the process shall be regulated by a special statutory act, adopted according to Article 81(6) ItC. Under current rules both Houses must monitor the public finance equilibrium.

iii.  Practice and Doctrinal Debate on EMU-Closely Related Instruments The ICC’s broad interpretation63 of Article 11 ItC transformed it64 in the constitutional ‘door of access’ for Europe in the national system.65 For years, this same legal solution66 avoided the necessity to amend the ItC, first in order to make Italy become member of the EC and, then, to adopt further integrative steps – including those in the EMU field.67 Legal scholars since the 1960s68 have contributed to the debate focused on the implementation of EC/EU legal sources69 on the ‘counter-limits theory’70 and on every new integrative step. This debate roots in the protection of the constitutional core from any violation due to the implementation of EU legal sources.71 Only recently, legal scholars72 called into question the domestic framework analysed above, because it conflicts with constitutional principles and the regional and local political decision-making in financial matters.73 After 1984’s ICC ruling74 and until the 2001 constitutional amendments expressly recognising the EU in the ItC, the Italian parliament adopted even without any vivacious debate the crucial integrative steps of the Maastricht Treaty. During 2011–13 Italian institutions did not raise any doubts about EMU acts adopted inside or outside the EU legal order. At that time,

63 Antonio La Pergola, ‘Costituzione ed integrazione europea: il contributo della giurisprudenza costituzionale’ in A Pace (ed), Studi in onore di Leopoldo Elia (Milano, Giuffrè, 1999) 815–29. 64 Antonio Cassese, ‘Art 11’ in G Branca, A Pizzorusso (eds), Commentario alla Costituzione. I principi fondamentali, I (Bologna, Roma, Zanichelli, 1975) 462 ff.; Lorenza Carlassare, ‘L’art. 11 Cost. nella visione dei Costituenti’ (2013) 1 Costituzionalismo.it. 65 Marta Cartabia, ‘The Italian Constitutional Court and the Relationship between the Italian Legal System and the European Community’ (1990) 12/1 Michigan Journal of International Law, 173–203. 66 Judgment no 183/1973, ECLI:IT:COST:1973:183. 67 Ibid. 68 Giovanna Colombini, Francesca Nugnes, Istituzioni, Diritti, Economia. Dal Trattato di Roma alla Costituzione europea (Pisa, Plus, 2004). 69 Cartabia, Gennusa, Le fonti europee e il diritto italiano; Cartabia, ‘The Italian Constitutional Court and the Relationship between the Italian Legal System and the European Community’. 70 Marta Cartabia, Principi inviolabili e integrazione europea (Milano, Giuffrè, 1995). 71 Sergio Panunzio, I costituzionalisti e l’Europa. Riflessioni sui mutamenti costituzionali nel processo di integrazione europea (Milano, Giuffrè, 2002). 72 Luca Antonini, Federalismo all’italiana. Dietro le quinte della grande incompiuta: quello che ogni cittadino dovrebbe sapere (Venezia, Marsiglio, 2013); Luca Antonini, ‘Il c.d. federalismo fiscale. Un giudizio d’insieme su una riforma complessa’ (2014) 1-2 Le Regioni, 15–48; Luca Antonini, ‘La “Caporetto” del federalismo fiscale’; Luca Antonini, ‘La Corte costituzionale a difesa dell’autonomia finanziaria: il bilancio è un bene pubblico e l’equilibrio di bilancio non si persegue con tecnicismi contabili espropriativi’. 73 As enshrined in Art 117(3) ItC and in Art 119 ItC: Buzzacchi, ‘Equilibrio di bilancio versus autonomie e “Stato sociale”; Brancasi, L’autonomia finanziaria degli enti territoriali: note esegetiche sul nuovo Art 119 Cost’; Cartabia, Lupo, Simoncini, Democracy and Subsidiarity in the EU: National Parliaments, Regions and Civil Society in the Decision-making Process; Rivosecchi, ‘Il coordinamento della finanza pubblica tra patto di stabilità, patto di convergenza e determinazione dei fabbisogni standard degli enti territoriali’; Rivosecchi, ‘Finanza delle autonomie speciali e vincoli di sistema’ (2016) 1 Rivista AIC. 74 ECLI:IT:COST:1984:170.

Italy  345 all three branches of government worried only about the Italian sovereign default.75 The (few) parliamentary debates on these issues welcomed any measure able to avert this risk.76

III.  Constitutional Obstacles to EMU Integration A.  Revealed Obstacles by the Implementation of the Crisis Management Measures Within and Outside EU Law i.  The ‘2019 Annual Budget Statute Law’ in Light of the Excessive Deficit Procedure and Constitutional Court’s Order No 17/2019 Until 2018, obstacles to the implementation in the legal order of EMU related and crisis measures did not exist. Recently, political choices made by the Conte government called into question this attitude. These choices must not be confused with the changes the legal debate is asking for. This debate concerns only the EMU-related domestic framework having negative effects – such as centralisation of regional and local powers and weak parliamentary control over the budgetary process. Instruments adopted inside and outside the EU legal order (even SGP77 and FC78) have often been welcomed as further supranational integrative steps or means to confront the risk of sovereign default. Today, one crucial development is that rules concerning the Annual Budget Statute Law’s procedure79 do not bind the government in real terms. Even a government sustained by an incohesive parliamentary majority is able to push through its decisions against any contrary parliamentary or technical assessment. The domestic budgetary instruments for 2012–16 were conceived to monitor governmental decisions in financial fields – and, if necessary, to force the government to change its positions if it would not comply with provisions on public debt and deficit spending. Events concerning the 2019 national budgetary process give testimony in their failure as outlined below. In 2018, the UPB80 and other independent Italian bodies criticised the 2019 national budget draft because of its negative impact on national debt, deficit-spending, employment rate, foreign and internal investments, etc. Despite these warnings and the intervention of the EU Commission, until December 2018 the government refused to change it. Indeed, the parties winning the

75 Giovanni Adinolfi, Michele Vellano, La crisi del debito sovrano degli Stati dell’area euro. Profili giuridici (Torino, Giappichelli, 2013); Bifulco et al, Crisi economica e trasformazioni della dimensione giuridica: la costituzionalizzazione del pareggio di bilancio tra internazionalizzazione economica, processo di integrazione europea e sovranità nazionale. 76 For the transcription of all parliamentary debates recalled in the text, see www.banchedati.camera.it/tiap_16/ctrStartPage.asp and www.banchedati.camera.it/tiap_17/ctrStartPage.asp. 77 Quadrio Curzio, ‘Al di là del Patto: che cosa serve per la stabilità e la crescita’, 953–64; Giacinto Della Cananea, ‘La pseudo-riforma del Patto di stabilità e di crescita’ (2005) 3 Quaderni costituzionali, 668–70. 78 Bonvicini, Brugnoli, Il Fiscal Compact; Chiti, Natalini, Lo spazio amministrativo europeo. Le pubbliche amministrazioni dopo il trattato di Lisbona; Monica Bergo, ‘Pareggio di bilancio “all’italiana”. Qualche riflessione a margine della legge 24 dicembre 2012, n. 243 attuativa della riforma costituzionale più silenziosa degli ultimi tempi’ (2013) 6 Federalismi. 79 Francesco Boccia, Michele Della Morte, Gianmaria Palmieri, La riforma del bilancio dello Stato: atti del Convegno di Campobasso (Napoli, Editoriale Scientifica, 2016). 80 Regarding the role determined by the changed legal framework for several independent and administrative bodies (and, esp, for the UPB and INPS) see again Chiti, Natalini, Lo spazio amministrativo europeo; Razza, ‘L’Ufficio parlamentare di bilancio nella nuova governance italiana della finanza pubblica’; Vernata, ‘L’Ufficio parlamentare di bilancio: tra virtualità ausiliarie e soggettività euro-unitaria’.

346  Monica Bonini and Stefania Ninatti national elections of 4 March, 201881 announced during their electoral campaign that they would amend the framework implementing the FC and the SGP and challenge closely related measures at the EU level. The draft of the 2019 ‘Annual Budget Statute Law’ mirrored this position.82 It was based on a GDP deficit of 2.4 per cent.83 In October 2018 the EU Commission rejected it because it contravened Article 126(1) TFEU. During the winter of 2018, the announced deficit spending pushed up Italy’s borrowing costs and depressed bank stocks.84 The EU Commission emphasised that 2019’s development of the Italian budgetary situation was based on gross errors and did not cut Italy’s high debt. Only after the sale of Italian bonds on the international markets failed did the Prime Minister, the Minister for EU Affairs and the Minister for Economy and Finance suggest a different path.85 In December 2018 the EU Commission reached a deal with Italy. The government cut the GDP deficit to 2.04 per cent and lowered the economic growth forecast for 2019 from 1.5 per cent to 1.0 per cent (for recent growth forecasts, see section II.C.V). This decision allowed the EU Commission to avoid the excessive deficit procedure ex Article 126 TFEU and the related Protocol.86 Not so long ago, it would have been impossible to imagine that such events could occur. Legal instruments adopted until 2016 failed. As the events described above show, the Conte government changed its budgetary draft only after the failure of bond purchase on the international markets. Before that, even the possibility of an excessive deficit procedure was not enough to make the government cut 2019’s deficit and economic growth forecasts. In May 2019, the EU Commission officially informed the Minister of Economy and Finance of the proceedings relating to the fiscal surveillance of Italy. Given the notified data for 2018, Italy is confirmed not to have made sufficient progress towards compliance with the debt criterion. Therefore, the Commission considers the preparation of a report in accordance with Article 126(3) TFEU. In the meantime the EU Commission is waiting for the official Italian reply. The events concerning the ‘2019 Annual Budget’ statutory draft also involved the ICC. According to Article 72(4) ItC, the ordinary procedure for consideration and direct approval by both Houses is always followed in the case of drafts on the approval of budgets and accounts. The parliamentary debate on these matters must be an in-depth and highly participative one. People’s representatives must control financial and budgetary governmental decisions in real terms. Therefore, both Houses must approve the ‘Annual Budget’ statutory draft by 31 December of each year. Otherwise, according to Article 81(5) ItC, an interim budget must be granted by statute law and for no longer than four months. In December 2018, the government submitted too late the 2019 Annual Budget statutory draft to the parliament. Furthermore, the government announced that a negative parliamentary vote would lead to its resignation. In consequence, the Annual Budget was approved after an extremely limited debate and under the pressure both of an interim budget and of governmental resignation. 81 ‘Lega Nord-Premier Salvini’ and ‘Movimento 5 Stelle’: see Luigi Ferrajoli, ‘Democrazia e populismo’ (2018) 3 Rivista AIC. 82 Even if, after their election, in spite of the aforementioned political positions, on a parliamentary hearing of 3 July 2018, Giovanni Tria, economist scholar and Minister of Economy and Finance of the Conte government, confirmed that he wanted to respect the political decisions regarding EU and EMU taken by preceding governments: www. camera.it/leg18/1?active_tab_22007=22012&active_tab_27562=27569&active_tab_27538=27539&active_tab_32120= 32121&active_tab_32119=32120&active_slide_27561=0&alias=1&environment=camera_internet&element_id= list_27561&active_tab_27537=27538i. 83 Regarding the constitutional discipline of the balanced budget rule, see section II.D.ii. 84 See the ECB monthly ‘Bullettins’: www.ecb.europa.eu/pub/economic-bulletin/html/index.en.html. 85 Respectively Giuseppe Conte, Paolo Savona and Giovanni Tria: the prime minister is a legal scholar, the two ministers are renowned economists. 86 For the ‘126(3) EU Commission Report – Italy’ of 21 November 2018 and ‘the 126(3) EU Commission Report – Italy’ of 23 May 2018, see www.ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/

Italy  347 Such a case may be qualified as a conflict between powers of the state. More specifically, 37 senators belonging to the Partito Democratico (PD, an opposition party) claimed that their constitutional powers on national budget and accounts (as parliamentary members) had been encroached upon by the government. That is why they called on the ICC to get involved. The ICC issued order no 17/2019.87 It stated that the government had violated the constitutional rules determining the parliamentary debate. At the same time, the ICC emphasised that several circumstances left no choice to the government (eg the huge number of meetings and discussions at the EU level regarding the same draft, considerable former parliamentary debates on the same issues, etc) Finally, even if the ICC held the senators’ claim inadmissible, it warned the government that forthcoming limitations of parliamentary members’ constitutional functions would not be accepted.88 Against this complex background, the following legal instruments may become an obstacle in the future with respect to the implementation of EMU and crisis measures. These instruments must be considered in the context of the above-mentioned events. 1. National policies regarding the Italian position in the bottom-up participation in EU decision-making must be defined by both the ‘Interdepartmental Committee for European Affairs’ (CIAE) and the government. The CIAE defines the final Italian position to be presented at EU level once the Minister of International Affairs agrees on it. If the latter does not agree, no final Italian position may be presented at the EU level. 2. The ‘parliamentary reserve’ (Article 10, Statute Law no 234/2012) obliges the Italian government to ask the other members of the Council to stop any proceeding aimed to adopt EU acts (or related measures) until both Italian Houses have reached a decision concerning the same matter. The government is free to decide only if, after 30 days, the Houses have not yet reached an agreement or adopted a motion regarding the same issue. 3. The ‘emergency-brake mechanism’ (Article 12 Statute Law no 234/2012) obliges the Italian member in the Council – when proposals concerning the acts foreseen in Article 48(1) and (2) TFEU and in Article 83(3) TFEU89 must be discussed – to ask the other Members to submit the proposal to the European Council only if both Italian Houses have adopted an act on the same proposal. Moreover, it obliges the Italian member in the Council – when proposals concerning the acts foreseen in Article 31(2) TEU must be discussed – to oppose

eu-economic-governance-monitoring-prevention-correction/stability-and-growth-pact/corrective-armexcessive-deficit-procedure/closed-excessive-deficit-procedures/italy_en. 87 ECLI:IT:COST:2019:17. 88 On ICC’s order no 17/2019 see only the contributions published in Consulta.online 1(2019) p.g.c. federalismi.it: Antonio Ruggeri, ‘Il parlamentare e il suo riconoscimento quale “potere dello Stato” solo … virtuale o in astratto (nota minima a Corte cost.n. 17 del 2019)’ (2019); Massimo Cavino, ‘La necessità formale di uno statuto dell’opposizione’ (2019) 1 federalismi; Salvatore Curreri, ‘L’occasione persa’ (2019); Renzo Dickmann, ‘La Corte dichiara inammissibile il conflitto di attribuzioni contro il testo della legge di bilancio 2019-21 approvato dal Senato e ribadisce che i singoli parlamentari sono poteri dello Stato’ (2019); Alberto Lucarelli, ‘La violazione del procedimento legislativo ‘‘costituzionale’’ è una violazione grave e manifesta?’ (2019); Nicola Lupo, ‘Un’ordinanza compromissoria, ma che pone le basi per un procedimento legislativo più rispettoso della Costituzione’ (2019); Andrea Manzella, ‘L’opposizione in regime di parlamentarismo assoluto’ (2019); Andrea Morrone, ‘Lucciole per lanterne. La n. 17/2019 e la terra promessa di quote di potere per il singolo parlamentare’ (2019); Federico Sorrentino, ’La legge di bilancio tra Governo e Corte costituzionale: il Parlamento approva a scatola chiusa’ (2019). 89 These provisions determine respectively the adoption of measures (a) in the field of social security and aimed to provide freedom of movement of workers, which would affect important aspects of a Member State’s social security system or the financial balance of that same system; (b) in the field of eg terrorism, trafficking in human beings and sexual exploitation of women and children, illicit drug trafficking, illicit arms trafficking, money laundering etc, which would affect important aspects of a Member State’s criminal justice system.

348  Monica Bonini and Stefania Ninatti the proposal ‘for specific and fundamental reasons of national politics’. The Italian representative is free to decide only if, after 30 days, the Italian Houses have not yet reached an agreement or adopted a motion on the matter. 4. The Head of State could refuse to sign the ‘Annual Budget Statute Law’ (or any other statute law in the questioned matters) if he thinks that they break constitutional rules and/or principles. He may refuse to sign also if he is convinced that the Italian State risks violating international obligations. The only way for the government to oblige the president to sign may be if it shows that otherwise the parliamentary majority would vote for his impeachment (for ‘Constitution contempt’, Article 90 ItC).90 5. Withdrawal of confidence voted under Article 94 ItC would allow parliamentary members belonging to the majority (or, even if in Italy it is unlikely, to the opposition) to make the government resign.

B.  Revealed Obstacles to the (Further) Transfer of Powers in the Field of EMU Through Treaty Amendments i.  ‘Counter-limits’ Doctrine In 1973 and 1984 the ICC developed the ‘counter-limits’ doctrine. According to judgment no 183/1973,91 limitations of sovereignty ex Article 11 ItC cannot violate fundamental principles and human rights at the core of the legal order. Judgment no 170/198492 focuses on the application of such ‘counter-limits’. If an EU provision conflicts with fundamental principles and/or human rights – ie the constitutional core, the ordinary or administrative judge must call on the ICC to safeguard those principles and/or rights which are at stake. In such a circumstance, the ICC judgment will not focus directly on the EU provision violating the constitutional core. The Court judges the national act which implicitly introduced in the legal order the EU provision conflicting with the constitutional core. Such a national act is the one implementing the treaty in the Italian legal order – ie the EU Treaty ‘execution order’.93 In other words, the counter-limits concern a national legal act and only indirectly a supranational one. In Italy, domestic acts implementing further transfer of powers in the field of the EMU through Treaty amendments may be subject to such an ICC control. In the past, the ICC has rarely applied the ‘counter-limits’ doctrine, eg in 1989 (judgment no 232/1989 concerned the right to defence which, according to Article 24 ItC, is an inviolable right at every stage and instance of legal proceedings94). Recently, the ICC judgments concerning financial matters focused on domestic rules breaking regional and local decision-making power. The ICC argued that all financial decisions enshrine regional and local democratic will. Therefore, the national parliament is not allowed to violate the region’s and local decision-making power in such matters. 90 Under Art 90 Cost ItC the president is responsible only in case of high treason or violation of the Constitution. In such cases he may be impeached by parliament in joint sessions. 91 ECLI:IT:COST:1973:183. 92 ECLI:IT:COST:1984:170. 93 Roberto Bin, Paulo Caretti, Profili costituzionali dell’Unione europea 2nd edn (Bologna, Il Mulino, 2005). See again section II.A.i. and, about direct application of EU legal sources with full respect of the Italian order’s principles, eg ICC decisions nos 183/73, ECLI:IT:COST:1973:183; 232/1975, ECLI:IT:COST:1975:232; 170/84, ECLI:IT:COST:1984:170; 384/94, ECLI:IT:COST:1994:384; 94/95, ECLI:IT:COST:1995:94; and also nos 348–49/2007, ECLI:IT:COST:2007:348, ECLI:IT:COST:2007:349; 80/2011, ECLI:IT:COST:2011:80; 102–03/2008, ECLI:IT:COST:2008:102, ECLI:IT:COST:2008: 103. For judgment no.269/2017, ECLI:IT:COST:2017:269, see section II.A.i. 94 ECLI:IT:COST:1989:232.

Italy  349 Since 2017 (see judgment no 269/2017) the ICC has developed a more rigid attitude. Ordinary and administrative judges must always raise a question of constitutionality before the ICC when a violation of fundamental rights deriving from EU law is at stake. ICC judgments nos 20 and 63/201995 went even further. They do not call into question the supremacy of EU law but seem to place the relationship between the national and the EU order in a strict dualistic frame. This frame will probably not prevent parliamentary ratification of further Treaty amendments increasing the role of the EMU and its powers. However, dualism may reveal itself as a serious obstacle giving the ICC more power in circumstances involving the counter-limits doctrine – also in EMU matters. a.  New Article 81 ItC’s ‘Equilibrium-Budget’ Rule and Italian Welfare Model In Italy, financial coverage of social rights has been realised over time by incurring debt.96 For that reason the 2012 amendment of Article 81 ItC determines an ‘equilibrium budget rule’, not a ‘balanced budget rule’.97 Furthermore, the Italian constitutional order is based on a welfare market, not on the EU competitive model.98 Nonetheless, EC and, then, EU law succeeded in introducing the latter in the legal system. This evolution did not root in any formal amendment of the Constitution. Therefore, legal scholars expressed doubts regarding this specific matter.99 Indeed, from a legal perspective any measure putting in peril100 solidarity and regional democracy101 may contravene the ‘counter-limits’. This may call the ICC to rule again on the safeguard of the welfare- and solidarity principle and of regional democracy. b.  Tensions between EMU Related Measures and Constitutional Order Today, tensions between EMU-related measures and the constitutional order exist. Nonetheless, until the 2018 elections, national policies respected EMU goals and related measures. As a matter of fact, the main centre-left and centre-right parties have always been EU-friendly. Furthermore, in 2011–14 the parliamentary debate focused in principle on the risk of sovereign default and on the efforts to confront it. Those years were crucial for the implementation of the FC. Only over time did it become clear that the changed legal frame conflicted with constitutional principles102 and provisions.103 c.  ‘Political Control’ of EMU Related Measures It seems important to highlight that also political control (as outlined below) may hinder further EMU integration. 95 ECLI:IT:COST:2019:20 and ECLI:IT:COST:2019:63. 96 See Valerio Onida, Le leggi di spesa nella Costituzione (Milano, Giuffrè, 1969); Andrea Amatucci, L’ordinamento giuridico finanziario (Napoli, Jovene Editore, 1981); Lupò Avagliano, Il bilancio dello Stato tra ordinamento nazionale e vincoli europei. 97 See Camilla Buzzacchi, Bilancio e stabilità. Oltre l’equilibrio finanziario (Milano, Giuffrè, 2015) 63–116, 117–200. 98 Cesare Pinelli, Tiziano Treu, La Costituzione economica (Bologna, Il Mulino, 2010). 99 Bergo, ‘Pareggio di bilancio “all’italiana”. Qualche riflessione a margine della legge 24 dicembre 2012, n. 243 attuativa della riforma costituzionale più silenziosa degli ultimi tempi’; Ines Ciolli, ‘I paesi dell’eurozona e i vincoli di bilancio. Quando l’emergenza economica fa saltare gli strumenti normativi ordinari’ (2012) 1 Rivista AIC. 100 Respectively, Arts 2, 3(2), 5 and 119 ItC. 101 Antonini, Federalismo all’italiana. Dietro le quinte della grande incompiuta: quello che ogni cittadino dovrebbe sapere. 102 Brancasi, ‘L’autonomia finanziaria degli enti territoriali: note esegetiche sul nuovo Art 119 Cost’; Buzzacchi La solidarietà tributaria. Funzione fiscale e principi costituzionali; Bilancia, ‘Crisi economica e asimmetrie territoriali nella garanzia dei diritti sociali tra mercato unico e unione monetaria’. 103 Rivosecchi, L’indirizzo politico finanziario tra Costituzione italiana e vincoli europei.

350  Monica Bonini and Stefania Ninatti In Italy ‘political control’ cannot be exercised directly over EMU-related measures, but only on the national institution which adopted them, ie the government. The Italian constitutional system grounds in a parliamentary form of government, leaving only a narrow margin to direct democracy. Parliamentary confidence must be approved by a simple majority in both Houses (which draw and withdraw confidence separately). Parliamentary withdrawal of confidence may be voted even by the simple majority of only one House. In this case, Article 94 ItC determines a clear constitutional implication – the government must resign. Referendums do not replace this control. Moreover, they can be held only under specific circumstances listed in the ItC.104 A consultative referendum has taken place only on 18 June 1989, when Constitutional Law no 2/1989 allowed the Italian people to decide directly if they wanted the EU parliament to draft a project aimed at strengthening European integration.105 Should such a referendum be called in forthcoming years, in order to ask the Italian people if they want to leave or remain in the EMU, the parliament and the government should respect its result and start Article 50 TEU procedure. Against this background, the results of referendums may only indirectly have political consequences on the relationship between parliament and government. Obviously, political consequences must not be confused with constitutional rules and their implications. In the end, only two aspects of the issue seem certain. Any of the existing referendums may be held on EMU-related measures. First, this is because domestic acts implementing secondary EU law and/or EMU-related measures (even if adopted with non-EU instruments) may not be repealed or amended – even by a referendum. Secondly, because, according to Article 75(1) and (2) ItC, the ‘repeal referendum’ may not be held on a law regulating taxes, the budget, amnesty or pardon, or a law ratifying a treaty. Prior to 2019, the existing parties had not submitted – in both or even only one House – a constitutional draft in order to introduce a consultative referendum regarding Italy’s withdrawal from the EMU or the EU.

C.  Scrutiny of Secondary Legislation, esp ‘Ultra Vires Doctrine’ Even after judgments nos 269/2017, 20 and 63/2019,106 Italy’s experience regarding judicial control of EMU-related measures and secondary EU law may only partially be compared to that of Germany.107 The ICC ruled on the clarification and safeguard of the welfare and solidarity principle, of regional democracy and on the need to leave protection of fundamental rights at the core of the activities of the EU Member States’ constitutional courts – even in a multilevel system. It did not focus on ultra vires acts, or directly on EU or non-EU instruments employed in addressing the eurozone debt crisis.

104 Ie by voting following referendums: Art 75’s ItC repeal referendum; Art 138 ItC’s constitutional referendum; Art 132(1) ItC’s referendum to merge already existing regions or to create new regions; Art 133(2) ItC’s referendum to create new municipalities or to modify municipal districts or municipalities’ names; Art 123(3,4) ItC’s referendum regarding regional statute laws or administrative acts. Ex multis Massimo Luciani, ‘Il referendum abrogativo’, in G Branca, A Pizzorusso (eds), Commentario della Costituzione, XLIII (Bologna, Zanichelli, Roma, Soc. ed. del Foro italiano, 2005). 105 See esp Constitutional Law no 2/1989, Art 2. 106 And other judgment such as nos 359/2007, ECLI:IT:COST:2007:359; 213/2008, ECLI:IT:COST:2008:213; 70/2012, ECLI:IT:COST:2012:70; 192/2012, ECLI:IT:COST:2012:192. 107 See BVerfG, Urteil des Zweiten Senats vom 21. Juni 2016 – 2 BvR 2728/13 – Rn. (1-220) and CJEU, Judgment of the Court (Grand Chamber) of 16 June 2015, Peter Gauweiler and Others v Deutscher Bundestag, in C-62/14, ECLI:EU:C:2015:400.

Italy  351 Furthermore, in the Italian legal system judicial control of the ‘Annual Budget Statute Law’ is difficult, for technical reasons.108 The Italian budgetary process is based on an impressive number of acts and measures which the ICC cannot separate to exercise its judicial control on single domestic EMU-related measures. This difficulty seriously hinders judicial control in the field. However, over time it became clear that the changed legal framework conflicted with constitutional principles109 and provisions.110 Consequently, the ICC re-established respect for these principles. In that regard it is enough to recall the ICC’s judgments, which a. distinguished harmonisation of public accounts from coordination of public finance (judgment no 184/2016111); b. recalled the specific responsibility of the national parliament towards all territorial levels and all citizens when it harmonises public accounts (judgments nos 10 and 70/2016112); c highlighted that budget and other financial decisions ground in the democratic principle and express fundamental political choices of every territorial level. Harmonisation of public accounts and coordination of public finance at central level are obviously necessary in the new European and domestic legal frame. Nonetheless, for the ICC they should not centralise democratic decisions belonging to other territorial levels (judgments nos 107, 184, 186 and 188/2016113); d stressed that budgetary and other financial decisions which weaken the Italian regional model endanger also the financial coverage of social rights expenses and the social welfare (judgments nos 10, 43, 129/2016114).

D.  Limits to ‘European Integration Outside the EU Legal Order’ In principle, the recent legal and parliamentary debate does not focus on the difference between further integrative steps to be adopted outside the EU order. However, legal scholars and the opposition party criticise the ‘Internal Stability Pact’.115 According to their positions, the domestic legal framework adopted to implement rules in the widest EMU field should be changed. This framework conflicts with fundamental principles on regional and local political decision-making and violates Articles 2 and 3(2) ItC, which cover the constitutional principle of solidarity.116 In this light, today the debate focuses on the need to re-establish the respect for these principles by changing national acts.117 For this reason – at least theoretically – further transfers of EMU-related powers should not trespass upon the thresholds fixed by the ICC and analysed above. 108 Gino Scaccia, ‘La giustiziabilità della regola del pareggio di bilancio’ (2012) 3 Rivista AIC; Guido Rivosecchi, ‘L’equilibrio di bilancio: dalla riforma costituzionale alla giustiziabilità’ (2016) 3 Rivista AIC. 109 Brancasi, ‘L’autonomia finanziaria degli enti territoriali: note esegetiche sul nuovo art. 119 Cost’; Buzzacchi, La solidarietà tributaria. Funzione fiscale e principi costituzionali, Bilancia, ‘Crisi economica e asimmetrie territoriali nella garanzia dei diritti sociali tra mercato unico e unione monetaria’. 110 Rivosecchi, L’indirizzo politico-finanziario tra Costituzione italiana e vincoli europei. 111 ECLI:IT:COST:2016:184. 112 ECLI:IT:COST:2016:10, ECLI:IT:COST:2016:70. 113 ECLI:IT:COST:2016:107, ECLI:IT:COST:2016:184, ECLI:IT:COST:2016:186, ECLI:IT:COST:2016:188. 114 ECLI:IT:COST:2016:10; ECLI:IT:COST:2016:43; ECLI:IT:COST:2016:129. 115 Antonini, ‘Armonizzazione contabile e autonomia finanziaria degli enti territoriali’ and ‘La ‘Caporetto’ del federalismo fiscale’; regarding the political program of the leader of the main opposition party see www.nicolazingaretti.it/ programma/. 116 Buzzacchi, La solidarietà tributaria. Funzione fiscale e principi costituzionali. 117 Antonini, ‘La ‘Caporetto’ del federalismo fiscale’, ‘Armonizzazione contabile e autonomia finanziaria degli enti territoriali’, ‘La Corte costituzionale a difesa dell’autonomia finanziaria: il bilancio è un bene pubblico e l’equilibrio di bilancio non si persegue con tecnicismi contabili espropriativi’.

352  Monica Bonini and Stefania Ninatti

i.  Brief Constitutional Feasibility Study of EMU Reform Proposals The political and legal debate has not yet considered the EU Commission’s reform proposals of December 2017. Today, the parliament focuses on the ‘document of public economy and finance’.118 New aspects of that debate are based on the recent growth forecasts concerning the Italian GDP made by the National Statistics Institute (ISTAT) and the Parliamentary Budget Office (UPB). Italian GDP is not increasing as much as it should to overcome economic recession.119 According to ISTAT’s assessment, during 2019’s first trimester it increased at a 0.2 per cent rate.120 The UPB’s Report on the 2019 Budget Policy121 estimated that, until June 2019, the GDP would not increase by more than 0.4 per cent. In this light, the political debate should obviously reflect upon the Commission’s proposals. Legally, the answer is more complex. The Commission’s proposals – even if indirectly – impact on the Member States’ economic powers. Therefore, their success requires an implicit further loss of national sovereignty in EMU-related strategic fields, not only compliance with the existing legal framework. However, a few observations may be made. The existing legal framework represents the basis on which at least most of the new proposals could be based. On the one hand, national rules setting up the new domestic budget process and others harmonising national, regional and local accounts and coordinating public finance may be the ‘door of access’ to further European integration steps. On the other hand, the legal debate focusing today on the need to change this same framework must be considered. If parliament revises that framework,122 the rules enhancing fiscal discipline and structural reforms123 – specifically aimed to tighten the SGP – will no longer comply with national rules aimed to loosen eg the Internal Stability Pact. Of course, such a change would be extremely complicated. Parliament would have to amend not only existing statutory acts, but also constitutional provisions. Similar suggestions may concern also the proposals regarding the macroeconomic stabilisation mechanisms for asymmetric economic shocks.124 In future, the access to such mechanisms may depend on the Member States’ compliance with a new, tightened fiscal discipline. New domestic rules loosening the Internal Stability Pact constraints (and, as a consequence, the SGP ones) would hinder the country’s access to such mechanisms. However, these challenges could be addressed by amending the national legal framework and negotiating at the same time strategic aspects at the EU level. Reform proposals concerning the ESM,125 the ‘Euro-area Fiscal

118 www.mef.gov.it/inevidenza/article_0399.html. 119 www.upbilancio.it/pubblicata-la-nota-sulla-congiuntura-di-febbraio-2019/; see also ECB Bulletin no 3 of 25 April 2019. 120 www.istat.it/it/?ultimidati. 121 www.upbilancio.it/wp-content/uploads/2019/01/Rapporto-politica-di-bilancio-2019-_per-sito.pdf. 122 One of the most actively debating legal scholars is Luca Antonini (see the list of references for his most significant works): during summer of 2019, parliament elected him as Constitutional Judge. 123 European Commission, ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’, COM (2017)824; European Commission, ‘Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006’, COM (2017)826. 124 European Commission, ‘Communication on new budgetary instruments for a stable euro area within the Union framework’ COM (2017)822. 125 European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’, COM (2017)827.

Italy  353 Capacity’126 and the ‘Fiscal Backstop for Banking Union’127 do not seem to be threatened by severe constitutional difficulties. Italy may confront them as further EU integrative steps. Against this background, any feasibility study which is based on a potentially changing framework risks being pure speculation. As a consequence, at least one aspect of the subject matter seems to be certain. In Italy the real problem presently is a political, not a legal one. In order to face this specific obstacle (and to confront the actual legal debate), EU institutions should adopt a more flexible approach to the SGP’s application. The ‘repatriation’ of the Fiscal Compact should foresee more exceptional circumstances justifying temporary deviations from the golden rule. Significant deviations from the MTO (or from the adjustment path towards it) should not trigger an automatic correction mechanism. Even the ‘excessive deficit procedure’ should develop into a more flexible one. Such adjustments could weaken the national political resistance (and the Italian people’s one) towards further EMU steps. It is important to stress that today, even EU friendly experts and legal scholars, highlight the need of such a development.128 None of them has yet criticised the Commission’s 2017 package. Moreover, during and after the 2011 Italian crisis, a few of them highlighted the need of creating euro bonds and European safe assets.129 Given that, for Italy, the problem is a political one, the naming of a new institution as ‘EU Minister for Economy and Finance’130 could provoke criticism. Populist parties would certainly present this reform as an unbearable limitation on sovereignty. Nonetheless, a renaming without substantive simplification of the EMU governance would in any case encounter resistance.

ii.  Country-specific Modes of Participation of the National Parliament and Governments in EMU Decision-making The Italian legal order does not foresee specific modes of participation of national institutions in EMU decision-making. Statute Law no 234/2012 ensures that the Italian government’s behaviour at EU level respects the parliamentary will. This could apply also to EMU decision-making. In particular: a. according to Articles 5–9, the government must inform both Houses of every negotiation concerning financial matters it participates in. The parliamentary position binds the government throughout the negotiations with other Member States or the creation of EU law. Both Houses may submit to the EU institutions and to the Italian government every act they consider important to create European policies. b. Article 10 introduces the ‘parliamentary reserve’. The Italian government must ask the other members of the Council of Ministries to stop any proceeding aimed to adopt EU acts until both Italian Houses have reached a decision concerning the same matters. The government is free to decide only if, after 30 days, the Houses have not yet reached an agreement or adopted a motion regarding the same issue.

126 European Commission, COM(2017)822. 127 European Commission, COM(2017)827. 128 Rivosecchi, ‘Il coordinamento della finanza pubblica tra patto di stabilità, patto di convergenza e determinazione dei fabbisogni standard degli enti territoriali’; Antonini, ‘La Corte costituzionale a difesa dell’autonomia finanziaria: il bilancio è un bene pubblico e l’equilibrio di bilancio non si persegue con tecnicismi contabili espropriativi’. 129 Quadrio Curzio, ‘Al di là del Patto: che cosa serve per la stabilità e la crescita’. 130 European Commission, ‘Communication on a European Minister of Economy and Finance’, COM (2018) 823.

354  Monica Bonini and Stefania Ninatti c. Article 12 introduces the ‘emergency-brake mechanism’. If the Houses require, the Italian member in the Council – during the discussion of proposals concerning the acts foreseen in Article 48(2) and (3) and in Article 83(3) TFEU131 – must ask the Council to submit the proposal to the European Council. If both Italian Houses require, the Italian member in the Council – during the discussion of proposals concerning the acts foreseen in Article 31(2) TEU – must oppose the proposal ‘for specific and fundamental reasons of national politics’. The Italian representative is not bound by a parliamentary position only if, after 30 days, the Italian Houses have not yet reached an agreement or adopted a motion on the matter. a.  The ‘Italian Position’ and EU Legislative Proceedings According to Statute Law no 243/2012 two new bodies (CIAE, the ‘Interdepartmental Committee for European Affairs’, and CTV, the ‘Technical Assessment Committee’132) are crucial to the adoption of the ‘Italian position’ along the EU legislative proceeding. The Prime Minister heads the CIAE. He (or, if the Prime Minister’s delegates him, the Minister of European Affairs) attends its meetings. The Ministers of European Affairs, of Economic and Financial Affairs and any other ministers concerned with the measures or issues to be discussed in the meetings participate therein. The ‘President of Region’s Conference’ and the ‘President of the National Association of Italian Municipalities and Provinces’ may also participate if the meetings concern issues regarding their powers. The CIAE and the government define national policies regarding the Italian position in the bottom-up participation in EU decision-making. Then, the ‘Department for EU Policies’ defines the final Italian position to be presented at EU level. This position can be presented as the official one only if the Minister of Foreign Affairs agrees on it. The importance of this rule for the EMU became obvious after the 2018 elections. The winning parties wanted Paolo Savona to be Minister of Economy and Finance. Savona is an economist scholar who often advocated leaving the EMU: it would have been a hazard to appoint him in this role. Italy’s President succeeded in finding a solution to the matter. He appointed Savona as Minister of European Affairs and Enzo Moavero Milanesi – known for his technical and diplomatic skills and his EU-friendly positions – as Minister of Foreign Affairs. The ‘remedy’ found by the President did not oppose the wishes of the winning parties – Savona became Minister. On the other hand, given that the Minister of Foreign Affairs plays a substantive role regarding the ‘Italian position’, the President avoided the risk of an EU-unfriendly position being presented at EU level. The CIAE relies for any technical assessment on the ‘Technical Assessment Committee’, which ensures technical coordination between all bodies participating in EU decision-making. Representatives of every Italian public administration are members of the CTV. If necessary, the CTV may create ‘working committees’ for specific matters. If issues of regional interest are on the agenda, a representative of this level may join it. Members of independent agencies may also be invited. The CTV work concerns the adoption of the ‘Italian position’, which must fully respect the governmental decisions. It also organises the CIAE’s meetings. Representatives of every Italian public administration may send their requests to the CTV. Subsequently, it defines the Italian position at the EU level (if necessary, after a decision is taken by CIAE). The CTV sends these requests to all Italian representatives who must present them at the EU level and verifies whether the CIAE’s decisions have been implemented. 131 Ie the provisions determining respectively the adoption of social security measures and others, which would affect important aspects of a Member State’s social security system or the financial balance of that same system and in the field of eg terrorism, which would affect important aspects of a Member State’s criminal justice system: see section III.A.1. 132 See DPR nos 118 and 119/2015.

Italy  355

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law A.  Country-specific Techniques of Implementing Secondary Legislation Since 2012, parliament has adopted the ‘European Delegation Statute Law’ and the ‘European Statute Law’.133 With the first one, parliament delegates the government to adopt legislative decrees implementing EU provisions (implementation by means of secondary law, ie government regulations, may furthermore be solicited). With the ‘European Statute Law’, parliament amends or repeals Italian statutory acts which do not comply with EU law.

i.  EMU Governance and National Actors Specific national actors actively take part in the EMU governance framework. This participation indirectly allows parliament to exercise control over the government in EMU related matters. The Bank of Italy (BoI) plays a significant role134 as an integral part of the Eurosystem.135 It performs duties assigned under rules136 set by the decision-making bodies of the ESCB.137 The BoI also pursues monetary and finance policies.138 Thereby it oversees the stability and efficiency of the financial system, including the safeguard of the constitutional principle of the protection of savings.139 As regards bank supervision,140 the Bank of Italy is the competent national authority for the Single Supervisory Mechanism (SSM).141 As regards resolution of bank crises, BoI is the competent ‘National Resolution Authority’.142 It performs the tasks envisaged by the SSM.143

133 See Cartabia, Lupo, Simoncini, Democracy and Subsidiarity in the EU: National Parliaments, Regions and Civil Society in the Decision-making Process; Paolo Caretti, ‘La legge n. 234/2012 che disciplina la partecipazione dell’Italia alla formazione e all’attuazione della normativa e delle politiche dell’Unione europea: un traguardo o ancora una tappa intermedia?’ (2012) 5–6 Le Regioni, 837–44. 134 In general see Michele Fratianni, Franco Spinelli, Storia monetaria d’Italia: lira e politica monetaria dall’Unità all’Unione europea (Milano, Etas, 2001); Giuseppe Guarino, ‘Il ruolo della Banca d’Italia’ in D Masciandaro, S Ristuccia (eds), L’autonomia delle banche centrali (Milano, Edizioni di Comunità, 1988), 270. The Bank of Italy’s functional and governance arrangements are based on a variety of different legal sources: see www.bancaditalia.it. 135 Filippo Zatti, ‘Il ruolo della Banca d’Italia tra Sebc, Bce ed istituzioni politiche nazionali’ in Orlando Roselli (ed), Europa e banche centrali (Edizioni scientifiche Italiane, 2004) 196ff. 136 Ginevra Cerrina Feroni (ed), Tutela del risparmio e vigilanza sull’esercizio del credito: un’analisi comparata (Torino, Giappichelli, 2011), esp 272; Giorgio Sangiorgio, Francesco Capriglione, ‘La legge bancaria, evoluzione normativa e orientamenti esegetici’ (1986) 7 Quaderni di ricerca giuridica della consulenza legale della Banca d’Italia 19 ff. 137 Roselli, Europa e Banche centrali. 138 Renzo Costi, L’ordinamento bancario (Bologna, Il Mulino, 1986), esp 84 ff. 139 Fabio Merusi, ‘La posizione costituzionale della banca centrale in Italia’ (1981) 4 Rivista trimestrale di diritto pubblico, 1098 ff; Ginevra Cerrina Feroni, Giuseppe Franco Ferrari (eds), Crisi economico-finanziaria e intervento dello Stato: modelli comparati e prospettive. Atti del convegno dell’Associazione di diritto pubblico comparato ed europeo, Firenze 18 novembre 2011 (Torino, Giappichelli, 2012). 140 For the legal frame of SSM and SRM regarding the National Bank see again www.bancaditalia. 141 Cerrina Feroni, Tutela del risparmio e vigilanza sull’esercizio del credito: un’analisi comparata; Giorgio Napolitano, ‘Il meccanismo europeo di stabilità e la nuova frontiera costituzionale dell’Unione’ (2012) 5 Giornale di Diritto amministrativo, 468ff; Francesco Capriglione, L’unione bancaria europea. Una sfida per un’Europa più unita (Milano, Utet Giuridica, 2013); Concetta Brescia Morra, ‘La nuova architettura della vigilanza bancaria in Europa’ (2015) 1 Banca, impresa e società, 73–90. 142 Ibid, 73. 143 Antonio Brancasi, ‘Unione economica e monetaria’ in G Strozzi (ed), Diritto dell’Unione europea. Parte speciale (Torino, Giappichelli, 2000) 423 ff. More specifically, since November 2014 BoI’s supervision on banks and non-banking intermediaries (entered in specific register) has been conducted within the framework of the SSM (and the related ‘Single Resolution Fund’, given that the Fund will be financed by contributions from the banking sector and some investment firms established in the Member States participating in the Banking Union): see www.bancaditalia.it.

356  Monica Bonini and Stefania Ninatti The Governor presents the BoI’s activities on national and ESBC’s matters144 during hearings of the ‘Joint Finance Committees of both Houses’ (or similar bodies). These hearings should play a crucial role in the relationship between parliament and government. In 2018 something different happened. The Governor of the BoI presented a report emphasising that the draft 2019 ‘Annual Budget’ did not comply with legal constraints. Despite this circumstance, the parliament failed to amend it, the government having violated the legislative procedure of budgetary draft approval (see II.A.i, 340).

V.  Resulting Relationship between EMU Related Law and National Law A.  General Impact of EMU Related Law and Jurisdiction on National Law and Vice Versa Over time, EMU-related law has been implemented in the Italian legal order as a further European integrative step. Nevertheless, tensions between EMU-related law and Italian constitutional principles exist. A crucial question is whether the Italian parliament will amend the current domestic legal framework in order to rebuild the Italian welfare model and to restore the political and financial equilibrium between regional, local and central powers. Such amendments could hinder the implementation of some of the 2017 EU Commission’s proposals. A further relevant issue is whether the ICC’s judgments in this field will influence the parliament’s decisions or not. Legal scholars highlighted the importance of those judgments145 emphasising that the centralisation of harmonisation of public accounts and coordination of public finance conflict with the Italian regional and welfare model. Against this background, the legal debate suggests that both Houses adopt statutory acts based on a fundamental consideration: budget and other financial decisions are fundamental political choices of every territorial level, affecting their wealth. Therefore, domestic rules implementing EMU law should not challenge local democratic decisions and the welfare model. Otherwise, the ICC could find itself in the position of supplementing the operation of the political organs.

References G Adinolfi, M Vellano, La crisi del debito sovrano degli Stati dell’area euro. Profili giuridici (Torino, Giappichelli, 2013). A Amatucci, L’ordinamento giuridico finanziario (Napoli, Jovene Editore, 1981). L Antonini, ‘Armonizzazione contabile e autonomia finanziaria degli enti territoriali’ (2017) 1 Rivista AIC. L Antonini, Federalismo all’italiana. Dietro le quinte della grande incompiuta: quello che ogni cittadino dovrebbe sapere (Venezia, Marsilio, 2013).

144 Gaetano Bucci, ’Implicazioni dei rapporti tra ordinamento giuridico italiano ed ordinamento comunitario sul ruolo della Banca d’Italia’ (1998) 1 Rivista italiana di diritto pubblico comunitario 127. 145 Antonini, ‘Il c.d. federalismo fiscale. Un giudizio d’insieme su una riforma complessa’; ‘La ‘Caporetto’ del federalismo fiscale’; ‘Armonizzazione contabile e autonomia finanziaria degli enti territoriali’ and ‘La Corte costituzionale a difesa dell’autonomia finanziaria: il bilancio è un bene pubblico e l’equilibrio di bilancio non si persegue con tecnicismi contabili espropriativi’.

Italy  357 L Antonini, ‘Il c.d. federalismo fiscale. Un giudizio d’insieme su una riforma complessa’ (2014) 1–2 Le Regioni, 15–48. L Antonini, ‘L’autonomia finanziaria delle Regioni tra riforme tentate, crisi economica e prospettive’ (2014)4 Rivista AIC. L Antonini, ‘La ‘Caporetto’ del federalismo fiscale’ (2015) 71/3 Quaderni di ricerca sull’artigianato, 361–374. L Antonini, ‘La Corte costituzionale a difesa dell’autonomia finanziaria: il bilancio è un bene pubblico e l’equilibrio di bilancio non si persegue con tecnicismi contabili espropriativi’ (2018) 1 Rivista AIC. A Barbera, ‘La Carta dei diritti: per un dialogo fra la Corte italiana e la Corte di giustizia’ (2017) 4 Rivista AIC. M Bergo, ‘Pareggio di bilancio ‘all’italiana’. Qualche riflessione a margine della legge 24 dicembre 2012, n. 243 attuativa della riforma costituzionale più silenziosa degli ultimi tempi’ (2013) 6 Federalismi. R Bifulco et al, Crisi economica e trasformazioni della dimensione giuridica: la costituzionalizzazione del pareggio di bilancio tra internazionalizzazione economica, processo di integrazione europea e sovranità nazionale (Torino, Giappichelli, 2013). F Bilancia, ‘Crisi economica e asimmetrie territoriali nella garanzia dei diritti sociali tra mercato unico e unione monetaria’ (2014) 2 Rivista AIC. R Bin, P Caretti, Profili costituzionali dell’Unione europea 2nd edn (Bologna, Il Mulino, 2005). F Boccia, M Della Morte, G Palmieri, La riforma del bilancio dello Stato: atti del Convegno di Campobasso (Napoli, Editoriale Scientifica, 2016). G Bognetti, ‘Costituzione e bilancio dello Stato. Il problema delle spese in deficit (note ispirate dalla lettura di un libro di G. Rivosecchi’ (2009) 3 Nomos, 17–74. Gianni Bonvicini, Flavio Brugnoli, Il Fiscal Compact (Roma, Nuova Cultura, 2012). G Branca, A Pizzorusso A, Commentario alla Costituzione (Bologna, Zanichelli, 1975 ff). A Brancasi, ‘Bilancio (equilibrio di)’ in Enciclopedia del diritto, Annali, VII (Milano, Giuffrè, 2012). A Brancasi, ‘Il coordinamento della finanza pubblica nel federalismo fiscale’ (2011) 2 Diritto pubblico, 451–482. A Brancasi, ‘L’autonomia finanziaria degli enti territoriali di fronte ai vincoli europei ed alla riforma costituzionale sul ‘pareggio di bilancio’’ (2014) 1–2 Le Regioni, 49–80. A Brancasi, ‘L’autonomia finanziaria degli enti territoriali: note esegetiche sul nuovo Art 119 Cost’ (2003) 1 Le Regioni, 41–115. A Brancasi, ‘Unione economica e monetaria’ in G Strozzi (ed), Diritto dell’Unione europea. Parte speciale (Torino, Giappichelli, 2000). C Brescia Morra, ‘La nuova architettura della vigilanza bancaria in Europa’ (2015) 1 Banca, impresa e società, 73–90. G Bucci, ‘Implicazioni dei rapporti tra ordinamento giuridico italiano ed ordinamento comunitario sul ruolo della Banca d’Italia’ (1998) 1 Rivista italiana di diritto pubblico comunitario. C Buzzacchi, Bilancio e stabilità. Oltre l’equilibrio finanziario (Milano, Giuffrè, 2015). C Buzzacchi, ‘Equilibrio di bilancio versus autonomie e “Stato sociale” ’ (2014) 1 Amministrare, 49–92. C Buzzacchi ‘Il “custode della finanza pubblica allargata” e gli oneri della potestà di coordinamenti’ (2016) 4 Le Regioni, 748–59. C Buzzacchi, La solidarietà tributaria. Funzione fiscale e principi costituzionali (Milano, Giuffrè, 2011). F Capriglione, L’unione bancaria europea. Una sfida per un’Europa più unita (Milano, Utet Giuridica, 2013). P Caretti, ‘La legge n. 234/2012 che disciplina la partecipazione dell’Italia alla formazione e all’attuazione della normativa e delle politiche dell’Unione europea: un traguardo o ancora una tappa intermedia?’ (2012) 5–6 Le Regioni, 837–44. L Carlassare, ‘L’art. 11 Cost. nella visione dei Costituenti’ (2013) 1 Costituzionalismo.it. M Cartabia, Principi inviolabili e integrazione europea (Milano, Giuffre, 1995). M Cartabia, ‘The Italian Constitutional Court and the Relationship between the Italian Legal System and the European Community’ (1990) 12/1 Michigan Journal of International Law, 173–203. M Cartabia, M Gennusa, Le fonti europee e il diritto italiano (Torino, Giappichelli, 2009). M Cartabia, L Violini, ‘Le norme generali sulla partecipazione dell’Italia al processo normativo dell’Unione europea e sulle procedure di esecuzione degli obblighi comunitari. Commento alla legge 4 febbraio 2005, n.11’ (2005)4 Le Regioni, 451–75. M Cartabia, N Lupo, A Simoncini, Democracy and Subsidiarity in the EU: National Parliaments, Regions and Civil Society in the Decision-making Process (Bologna, Il Mulino, 2013). A Cassese, ‘Art 11’ in G Branca, A Pizzorusso (eds), Commentario alla Costituzione. I principi fondamentali, I (Bologna, Roma, Zanichelli, 1975). E Catelani, ‘Nuove richieste di autonomia differenziata ex art. 116 comma 3 Cost.: profili procedimentali di dubbia legittimità e possibile violazione di diritti’ (2018) 2 Osservatorio sulle fonti.

358  Monica Bonini and Stefania Ninatti M Cavino, ’La necessità formale di uno statuto dell’opposizione’ (2019) 1 federalismi.it. G Cerrina Feroni (ed), Tutela del risparmio e vigilanza sull’esercizio del credito: un’analisi comparata (Torino, Giappichelli, 2011). G Cerrina Feroni, G Franco Ferrari (eds), Crisi economico-finanziaria e intervento dello Stato: modelli comparati e prospettive. Atti del convegno dell’Associazione di diritto pubblico comparato ed europeo, Firenze 18 novembre 2011 (Torino, Giappichelli, 2012). L Chieffi, G Clemente di San Luca, Regioni ed enti locali dopo la riforma del Titolo V della Costituzione: fra attuazione ed ipotesi di ulteriore revisione (Torino, Giappichelli, 2004). M P Chiti, A Natalini, Lo spazio amministrativo europeo. Le pubbliche amministrazioni dopo il trattato di Lisbona (Bologna, Il Mulino, 2012). I Ciolli, ‘I paesi dell’eurozona e i vincoli di bilancio. Quando l’emergenza economica fa saltare gli strumenti normativi ordinari’ (2012) 1 Rivista AIC. I Ciolli, Le ragioni dei diritti e il pareggio di bilancio (Rome, Aracne, 2013). F Clementi, L Cuocolo, F Rosa, GE Vigevani, La Costituzione italiana, commento articolo per articolo (Bologna, Il Mulino, 2018). G Colombini, F Nugnes, Istituzioni, Diritti, Economia. Dal Trattato di Roma alla Costituzione europea (Pisa, Plus, 2004). R Costi, L’ordinamento bancario (Bologna, Il Mulino, 1986). S Curreri, ‘L’occasione persa’ (2019) federalismi.it. G Della Cananea, ‘La pseudo-riforma del Patto di stabilità e di crescita’ (2005) 3 Quaderni costituzionali, 668–70. R Dickmann, ‘La Corte dichiara inammissibile il conflitto di attribuzioni contro il testo della legge di bilancio 2019–21 approvato dal Senato e ribadisce che i singoli parlamentari sono poteri dello Stato’ (2019) federalismi.it. European Commission, COM (2017)822 ‘Communication on new budgetary instruments for a stable euro area within the Union framework’. European Commission, COM (2018) 823 ‘Communication on a European Minister of Economy and Finance’. European Commission, COM (2017)824 ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’. European Commission, COM (2017)826 ‘Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006’. European Commission, COM (2017)827 ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’. D Fausto, ‘La perequazione nell’attuazione dell’Art 119 della Costituzione’ (2008) 1 Rivista economica del Mezzogiorno, 59–82. L Ferrajoli, ‘Democrazia e populismo’ (2018) 3 Rivista AIC. M Fratianni, F Spinelli, Storia monetaria d’Italia: lira e politica monetaria dall’Unità all’Unione europea (Milano, Etas, 2001). S Gambino, Diritti sociali e crisi economica: problemi e prospettive (Torino, Giappichelli, 2015). S Giubboni, Diritti sociali e mercato (Bologna, Il Mulino, 2003). S Giubboni, Solidarietà, in Politica del diritto (Bologna, Il Mulino, 2012). G Guarino, ‘Il ruolo della Banca d’Italia’ in D Masciandaro, S Ristuccia (eds), L’autonomia delle banche centrali (Milano, Edizioni di Comunità, 1988). F Guella, Sovranità e autonomia finanziaria negli ordinamenti composti (2014). F Guella, ‘Il patto di stabilità interno, tra funzione di coordinamento finanziario ed equilibrio di bilancio’ (2013) 3 Quaderni costituzionali, 585–616. A La Pergola, ‘Costituzione ed integrazione europea: il contributo della giurisprudenza costituzionale’ in A Pace, Studi in onore di Leopoldo Elia (Milano, Giuffrè, 1999), 815–29. A Lucarelli, ‘La violazione del procedimento legislativo “costituzionale” è una violazione grave e manifesta?’ (2019) federalismi. M Luciani, ‘I diritti costituzionali tra Stato e Regioni (a proposito dell’art. 117, 2, lett. m), della Costituzione)’ (2002) 3 Politica del diritto, 345–60. M Luciani, ‘Il referendum abrogativo’, in G Branca, A Pizzorusso (eds), Commentario della Costituzione, XLIII (Bologna, Zanichelli, Roma, Soc. ed. del Foro italiano, 2005).

Italy  359 M Luciani, ‘Costituzione, bilancio, diritti e doveri dei cittadini’ (2012) 6 Questione giustizia. N Lupo, ‘Un’ordinanza compromissoria, ma che pone le basi per un procedimento legislativo più rispettoso della Costituzione’ (2019) federalismi.it. MV Lupò Avagliano, Il bilancio dello Stato tra ordinamento nazionale e vincoli europei (Torino, Giappichelli, 2017). S Mangiameli, (ed), The Consequences of the Crisis on European Integration on the Member States (Heidelberg, Springer, 2017). A Manzella, ‘L’opposizione in regime di parlamentarismo assoluto’ (2019) federalismi.it. F Merusi, ‘La posizione costituzionale della banca centrale in Italia’ (1981) 4 Rivista trimestrale di diritto pubblico. D Mone, ‘Autonomia differenziata come mezzo di unità statale: la lettura dell’art. 116, 3 comma Cost, conforme a Costituzione’ (2019) 1 Rivista AIC. A Morrone, La Costituzione finanziaria: la decisione di bilancio dello Stato costituzionale europeo (Torino, Giappichelli, 2015). A Morrone, ‘Lucciole per lanterne. La n. 17/2019 e la terra promessa di quote di potere per il singolo parlamentare’ (2019) federalismi.it. G Napolitano, ‘Il meccanismo europeo di stabilità e la nuova frontiera costituzionale dell’Unione’ (2012) 5 Giornale di Diritto amministrativo. V Onida, Le leggi di spesa nella Costituzione (Milano, Giuffrè, 1969). S Panunzio, I costituzionalisti e l’Europa. Riflessioni sui mutamenti costituzionali nel processo di integrazione europea (Milano, Giuffrè, 2002). C Pinelli, T Treu, La Costituzione economica (Bologna, Il Mulino, 2010). A Quadrio Curzio, ‘Al di là del Patto: che cosa serve per la stabilità e la crescita’ (2004) 415(5) Il Mulino, 953–64. A Razza, ‘L’Ufficio parlamentare di bilancio nella nuova governance italiana della finanza pubblica’ (2013) 4 Rivista giuridica del Mezzogiorno, 893–902. G Rivosecchi, ‘Finanza delle autonomie speciali e vincoli di sistema’ (2016) 1 Rivista AIC. G Rivosecchi, ‘Il coordinamento della finanza pubblica tra patto di stabilità, patto di convergenza e determinazione dei fabbisogni standard degli enti territoriali’ (2012) 1 Rivista AIC. G Rivosecchi, ‘Finanza delle autonomie speciali e vincoli di sistema’ (2016) 1 Rivista AIC. G Rivosecchi, ‘L’equilibrio di bilancio: dalla riforma costituzionale alla giustiziabilità’ (2016) 3 Rivista AIC. G Rivosecchi, L’indirizzo politico-finanziario tra Costituzione italiana e vincoli europei (Padova, CEDAM, 2007). G Rivosecchi, ‘Parlamento e sistema delle autonomie all’ombra del Governo nelle trasformazioni della decisione di bilancio’ (2012) 1 Rivista AIC. O Roselli (ed), Europa e banche centrali (Edizioni scientifiche Italiane, 2004). A Ruggeri, ‘Il parlamentare e il suo riconoscimento quale “potere dello Stato” solo … virtuale o in astratto (nota minima a Corte cost.n. 17 del 2019)’ (2019) Consulta online. G Sangiorgio, F Capriglione, ‘La legge bancaria, evoluzione normativa e orientamenti esegetici’ (1986) 7 Quaderni di ricerca giuridica della consulenza legale della Banca d’Italia. G Scaccia, ‘La giustiziabilità della regola del pareggio di bilancio’ (2012) 3 Rivista AIC. T Scovazzi, Corso di diritto internazionale. Parte II: trattati, norme generali, adattamento (Milano, Giuffrè, 2015). T Scovazzi, M Arcari, Diritto internazionale e diritto interno (Milano, Giuffrè, 2015). C Secchi, Verso l’Euro: l’Unione economica e monetaria motore dell’Europa unita, 2nd edn (Venezia, Marsilio, 1998). F Sorrentino, ‘La legge di bilancio tra Governo e Corte costituzionale: il Parlamento approva a scatola chiusa’ (2019) federalismi.it. F Sucameli, ‘Il patto di stabilità interno fra politica e diritto’ (2014) 2 Quaderni costituzionali, 407–08. L Torchia, ‘Regioni e federalismo amministrativo’ (2001) 2 Le Regioni, 257–66. L Vandelli, F Bassanini (eds), Il federalismo alla prova. Regole, politiche, diritti nelle Regioni (Bologna, Il Mulino, 2012). A Vernata, ‘L’Ufficio parlamentare di bilancio: tra virtualità ausiliarie e soggettività euro-unitaria’ (2017) 2 Diritto pubblico, 469–514. L Violini, ‘L’autonomia delle regioni italiane dopo i referendum e le richieste di maggiori poteri ex art. 116, comma 3, Cost’ (2018) 4 Rivista AIC. F Zatti, ‘Il ruolo della Banca d’Italia tra Sebc, Bce ed istituzioni politiche nazionali’, in O Roselli (ed), Europa e banche centrali (Edizioni scientifiche Italiane, 2004).

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14 Cyprus NIKOS SKOUTARIS

Abstract: The idiosyncratic nature of the Cypriot constitutional order has been shaped by the turbulent historical trajectory of the island. Notwithstanding, the legal order of the Republic of Cyprus has proved flexible enough to face effectively the challenges arisen due to its membership to the EMU. The institutions of the Republic managed to implement almost seamlessly the swathes of different legislative instruments linked to the EMU. This is not to suggest that there have not been tensions. The implementation of the policies that were associated with the financial assistance programme led to thousands of legal challenges in the Cypriot and the EU courts. Key words: Cyprus; Constitution; doctrine of necessity; EU; EMU; euro crisis.

I.  Main Characteristics of the National Constitutional System and Constitutional Culture The Republic of Cyprus (hereinafter ‘RoC’ or ‘Republic’) became independent on 16 August 1960 and acceded to the EU on 1 May 2004 during the ‘Big-Bang Enlargement’. Four years later on 1 January 2008, the Cypriot pound was replaced by the Euro as the official currency of the state. During those years, the remarkable flexibility characterising the constitutional order of the Republic has helped to face effectively the challenges arising from its membership of the EU and the EMU. Such challenges include the unpopular measures that have been adopted as part of the financial assistance package of 2013.

A.  Main Characteristics The Cypriot constitutional system is characterised by the discrepancy between the official written text of the Constitution and the material/actual constitutional rules that apply in that legal order.1 Its written Constitution provides for a post-conflict consociational arrangement drawn up explicitly in terms of the two main ethno-religious communities: the Greek Cypriot and the

1 For an analysis see Nikolas Kyriakou and Nikos Skoutaris, ‘Cyprus’ in S Griller et al (eds), National Constitutions and EU Integration (Oxford, Hart Publishing, forthcoming).

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Turkish Cypriot ones.2 The material/actual Constitution has been based on the written one but is also shaped by the historical events that took place after the birth of the Republic and the inability of the two communities to build a common state. The island of Cyprus was under the dominion of the British Empire from 1878–1960. It was administered sequentially from 1878–1914 as a British protectorate followed by a unilaterally annexed military occupation from 1914–1922 and as a Crown colony from 1922–60. On 16 August 1960, it gained independence by virtue of three international treaties, namely the Treaty of Guarantee, the Treaty of Alliance and the Treaty of Establishment.3 The sophisticated arrangement that led to the independence of Cyprus as a sovereign state was rightly seen as a political compromise of the two main ethnic communities that live on the island, their motherlands Greece and Turkey and the UK as the colonial power. In particular, the Greek Cypriots were fighting for Enosis ie, union with the motherland while the goal of the Turkish Cypriots was Taksim ie, the partition of the island. So, to achieve the balance between those conflicting interests, a complicated power sharing structure was designed and captured in the Cypriot Constitution of 1960. In fact, all of the principles of the consociational democracy – grand coalition, proportionality, autonomy and veto – were elaborately embodied in the 1960 Constitution but abandoned three years later without officially amending it, as we shall see. This Constitution provided for ‘an independent and sovereign Republic with a presidential regime, the President being Greek and the Vice-President4 being Turkish, elected by the Greek and the Turkish communities of Cyprus respectively’.5 The President and Vice-President exercised executive powers.6 According to Article 54 of the Constitution, all executive powers not expressly reserved to the President and the Vice-President were exercised by the Council of Ministers. The cabinet had to consist of seven Greek ministers designated by the President and three Turkish ministers designated by the Vice-President. A seven-to-three ratio was also applied to the composition of the legislature, which was unicameral. The House of Representatives was comprised of 35 representatives belonging to the Greek community and 15 belonging to the Turkish one.7 According to the written Constitution, the judicial system would consist of a Supreme Constitutional Court,8 a High Court of Justice and lower courts.9 The Supreme Constitutional Court was comprised of a Greek Cypriot judge and a Turkish Cypriot judge and presided over by a neutral judge who was neither a Cypriot citizen nor a citizen of any of the Guarantor States. Its jurisdiction ranged from constitutional issues arising from the interpretation of provisions of the Constitution10 to the settling of conflicts or disputes regarding the extent of the authority of legislative and administrative bodies.11 The Constitution also guaranteed a great deal of non-territorial autonomy for the two ethnic segments by setting up two separately elected communal chambers with exclusive legislative powers over religious, educational, cultural, and personal status matters.12 However, this sophisticated consociational arrangement within the Constitution was shortlived. In December 1963, the first, low-scale, inter-communal armed conflict broke out in Nicosia leading to the break-up and the ‘Hellenisation’ of the bi-communal Republic in 1964. 2 According to the 1960 census, the Greek Cypriot segment comprised about 78%, and the Turkish Cypriot about 18% of the population, the remaining 4% being the minorities of the Maronites, Armenians and Latins. 3 See generally www.kypros.org/Constitution/English/. 4 See generally Part 3 (Arts 36–60) of the Constitution of the RoC. 5 Art 1 of the Constitution of the RoC. 6 Art 46 of the Constitution of the RoC. 7 See generally Part 4 (Arts 61–85) of the Constitution of the RoC. 8 See generally Part 9 (Arts 133–151) of the Constitution of the RoC. 9 See generally Part 10 (Arts 152–164) of the Constitution of the RoC. 10 Art 149 of the Constitution of the RoC. 11 Art 139 of the Constitution of the RoC. 12 See generally Part 5 (Arts 86–111) of the Constitution of the RoC.

Cyprus  363 Since then, the Turkish Cypriots have consistently refused to participate in the administration of the common state. Notwithstanding, the RoC continued functioning mainly by invoking the doctrine of necessity as established by the Supreme Court in the 1964 Mustafa Ibrahim judgment.13 This doctrine has been considered as a foundational constitutional principle, which indirectly forms part and reshapes the written constitution of 1960. It aims to solve the political, legal and constitutional problems created by the fact that the Turkish Cypriot constituent ethnic community has decided not to take part in the institutions of the common state. Given that the drafters of the written constitution did not foresee such eventuality, the Supreme Court stepped in in the case of Mustafa Ibrahim. It bridged the gap that had been created by the withdrawal of the Turkish Cypriots that threatened not only the proper functioning of the institutions but also the very existence of the Republic. This emblematic case dealt with the legality of the composition of the supreme courts. As already mentioned, the Cypriot judicial system was to consist of a Supreme Constitutional Court and a High Court of Justice among others. Both those courts were comprised of representatives from both communities and foreign judges. In the aftermath of the withdrawal of the Turkish Cypriot community and the resignation of Professor Försthoff, the President of the Supreme Constitutional Court, the question was how those courts would be staffed. The Cypriot parliament, that was at the moment exclusively comprised of Greek Cypriots, passed the Administration of Justice (Miscellaneous Provisions) Law, 33/1964. This law de facto amended the Constitution by merging the Supreme Constitutional Court and the High Court of Justice into a newly established Supreme Court comprised solely of Greek Cypriot judges. This new Court would exercise the jurisdictions and powers both of the Supreme Constitutional Court and the High Court ‘until such time as the people of Cyprus may determine such matters’.14 Given that this law de facto amended the Constitution by altering the structure and the composition of the supreme courts, its constitutionality was questioned. Ironically, it was the newly established Supreme Court whose constitutionality was questioned that had to examine whether its creation was a breach of the 1960 written Constitution in the case of Mustafa Ibrahim. Unsurprisingly, – if one takes into account its composition – the Court found that the aforementioned law was not in breach of the Constitution because of the doctrine of necessity. The newly established Supreme Court held that the unwritten doctrine of necessity should be considered to be included in the provisions of a strict and written constitution, and is, therefore, part of the constitutional order in Cyprus. It allows the country to safeguard its interests whenever the Constitution, due to its rigidity, one-sidedness and narrow ambit, contains no provisions giving satisfactory solutions to extraordinary situations ‘of a public necessity of the first magnitude’.15 Most importantly, the Court decided that there are four prerequisites to determine whether the said doctrine could be applied in a particular case: 1. 2. 3. 4.

There is an imperative and inevitable necessity or exceptional circumstance; There is no other remedy; The measure taken must be proportionate to the necessity; The measure must be of a temporary character limited to the duration of the exceptional circumstances.16

The doctrine of necessity, as defined in the Mustafa Ibrahim case, not only has provided the necessary legal basis for the Cypriot state to deal with the absence of the Turkish Cypriots in the

13 Case

Attorney General of the Republic v Mustafa Ibrahim [1964] CLR 195. 201 and 225. 15 Ibid, 234. 16 Ibid, 265. 14 Ibid,

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government, and their subsequent substitution with Greek Cypriots,17 but also, has allowed the amendment of basic and non-basic Articles of the Constitution as we will see later in this chapter. Most importantly, one has to note that notwithstanding the break-up and the ‘Hellenisation’ of the Republic, on 4 March 1964, the UN Security Council maintained the view that the RoC continuously existed in its entirety. It also recognised the legitimacy of the government of the Republic which was, at the time, comprised only of Greek Cypriots with the unanimous adoption of Resolution 186 (1964).

B.  Constitutional Culture Unsurprisingly, the dramatic political tensions and conflicts that have marked the history of the third largest island of the Mediterranean have also influenced its constitutional culture. In particular, it is important to highlight two distinct but interrelated issues. First, the Constitution, as initially designed in the Cyprus Agreements, is a typical example of a consociational arrangement that treats the two main ethno-religious segments as co-rulers of the island. This bi-communalism is evident in the fact that both the Greek Cypriot President and the Turkish Cypriot Vice-President were supposed to have vetoes and in the strict ethnic ratios for the executive, the legislature, the judiciary and the administration. This effort, however, to build, a culture of consensual constitutional politics in a post-conflict era was rather short-lived. In that sense, after 1964, RoC has been a mononational state. In 1974, after the Turkish intervention, the territorial division of the island was completed, and the ‘hellenised’ RoC remained the only internationally recognised state on the island. More importantly, as we mentioned in the previous section, the fragility of the post-conflict arrangement urged the drafters of the original 1960 written Constitution to provide for a very rigid amendment procedure of the non-basic constitutional provisions.18 According to Article 182(3) of the Constitution, any amendment of such provision required a two-thirds majority of the representatives of each community voting separately. However, following the break-up of the Republic and the recognition of the existence of the doctrine of necessity, the Cypriot parliament comprised of 56 Greek Cypriot representatives nowadays amended the Constitution numerous times either de jure or de facto without the consent of the Turkish Cypriot representatives who have not participated in RoC’s political and constitutional life since the mid-60s. To the extent that the parliament could amend the Constitution via the doctrine of necessity in the post-1964 era, it has become a permanent constitution-maker, as we shall see in section IV.A of the present chapter.

C.  Significance of the Constitution in the Legal System and Importance for the Polity As already discussed, the Cypriot judicial system, as initially conceived is part of a broader postconflict consociational arrangement. As such, it should be expected to follow a textualist mode 17 For a more detailed account see generally Achilleas Emilianides, ‘Accession of the Republic of Cyprus to the EU, the Constitution and the Cypriot Doctrine of Necessity’ (2007) The Cyprus Yearbook of International Relations 65; Nikolas Kyriakou, ‘Report on Cyprus’ in G Martinico and O Pollicino (eds), The National Judicial Treatment of the ECHR and EU Laws: A Constitutional Comparative Perspective (Groningen, Europa Law Publishing, 2010) 191. 18 See section IV.A. of the present chapter.

Cyprus  365 of interpretation that focuses on the meaning of the legal document as a depiction of the delicate balance between the ethno-religious segments. Indeed, as we will see in section IV.D., which discusses the case law related to the economic crisis, the Supreme Court has tried to follow that tradition quite closely even with regard to economic issues. However, as we already showed in the previous section, a strict textualist approach would have paralysed the state in the aftermath of the withdrawal of the Turkish Cypriot community from the institutions. This is why the Supreme Court resorted to the unwritten doctrine of necessity in Mustafa Ibrahim. Although that doctrine has been extensively used, the Court has held that it cannot be raised as a justification for crisis-related measures that are found unconstitutional.19

D.  Critical Developments As we mentioned before, in 1964 the Turkish Cypriot community withdrew from the institutions of the common state, while in 1974, Turkey militarily intervened on the island and established its well-known territorial division. During those years of political and territorial segregation, there have been endless rounds of negotiation for the reunification of the island. Since the High-Level Agreements of 197720 and 197921 between the then leaders Makarios and Denktash and between Kyprianou and Denktash respectively, the two communities have agreed on the basic parameters of the reunified state. The settlement will be based on a bi-zonal, bi-communal federation with political equality. In the unlikely event that the current gridlock is lifted, and the two communities approve in simultaneous referendums a settlement plan in the future, Cyprus will become a federal state where both communities will be participating effectively in all organs and decisions of the federal government. This will most probably happen through numerical formulae, similar to the ones provided in the 1960 Constitution. More importantly, bi-zonality means that there will be two constituent states – one Greek Cypriot and one Turkish Cypriot. Each constituent state will be administered by the respective community, which ‘would be guaranteed a clear majority of the population and land ownership in the area’ as the UN has explained. Given that more than 75% of the privately-owned land in Northern Cyprus belongs to Greek Cypriots, it is unavoidable that some Greek Cypriots will not get their property back. Instead, there will be a restitution scheme that will combine reinstatement for some dispossessed owners, exchange and/or compensation for some others. Also, even for those whose property rights will be reinstated, they might be living under Turkish Cypriot administration. The latest episode in the saga of the never-ending negotiations of the Cyprus issue took place in Crans-Montana where the two communities together with the three Guarantor Powers met in July 2017 under the auspices of the UN. Unfortunately, the negotiations failed to produce an agreement.

19 See section IV.D. of the present chapter. 20 Available at www.mfa.gov.cy/mfa/mfa2016.nsf/FB80B3D87DE5A915C2257F95002BE30E/$file/High%20-%20Level %20Agreement%20-%2012%20February%201977.pdf. 21 Available at www.mfa.gr/images/docs/kypriako/10_point_agreement_may_1979.pdf.

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II.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  Legal Foundations of RoC’s EMU Membership RoC’s Constitution was drafted in 1960 as part of a broader conflict resolution arrangement. As such, it is rather unsurprising that it did not envisage the membership of RoC either to the EU or the EMU. In order to effectively deal with the challenges raised by the participation to the EU, the Cypriot Constitution was amended to include new Article 1A which explicitly recognises the principle of primacy of EU law, as we shall see in section IV.B. of the current chapter. Concerning RoC’s membership to the EMU, its legal foundation can be found in Article 4 of the Act of Accession 2003. According to it, ‘[e]ach of the new Member States shall participate in Economic and Monetary Union from the date of accession as a Member State with a derogation within the meaning of [then] Article 122 of the EC Treaty’. At the same time, the adoption of the euro as the new currency of the state took place through Law 33 (I) of 2007. In its December 2006 convergence report, the Commission concluded that Cyprus met the three convergence criteria and was ready to adopt the euro in January 2008.22 Of course, RoC’s membership to the EMU and the subsequent adoption of the euro as a currency is limited to the southern part of the island. Article 1(1) of Protocol No 10 on Cyprus of the Act of Accession 2003 provides that the application of EU law is suspended in northern Cyprus – an area where RoC’s internationally recognised government does not exercise effective control.23 Such suspension can be lifted if the Council decides so unanimously, on the basis of a proposal from the Commission.24 More importantly, in the event of a settlement, Article 4 of the Protocol allows the Council of the EU to decide the adaptation concerning the Turkish Cypriot community, including their participation in the EMU unanimously. Indeed, if the April 2004 referendums had approved the new state of affairs envisaged in the UN Plan for a Comprehensive Settlement of the Cyprus issue (hereinafter the Annan Plan), the Council of the European Union, having regard to that Article, would have unanimously adopted the Draft Act of Adaptation of the Terms of Accession of the United Cyprus Republic to the European Union as a Regulation.25

B.  Rules on the Budgetary Process Articles 81, 167 and 168 of the Constitution provide for the rules on the budgetary process. In particular, Article 167 of RoC’s Constitution provides that it is the responsibility of the Minister of Finance to compile the budget for each financial year. After the budget has been approved by the Council of Ministers, it is submitted to the House of Representatives where it is discussed, and if approved adopted as a law by a simple majority.26 The Constitution does not provide for any elements either of a balanced budget rule or of independent budgetary councils. It is important to point out that ‘until 2012 Cyprus was among

22 Available at ec.europa.eu/economy_finance/articles/international/article10368_en.htm. 23 For a comprehensive analysis of Protocol No 10 see Nikolas Skoutaris, The Cyprus Issue: The Four Freedoms in a (Member-) State of Siege (Oxford, Hart Publishing, 2011) 44–8. 24 Protocol No 10, Art 1(2). 25 Appendix D of The UN Plan for a Comprehensive Settlement of the Cyprus Problem. 26 Art 78 of the Constitution of the RoC.

Cyprus  367 a handful of Member States that had neither fiscal rules nor a binding medium-term budgetary framework (hereinafter MTBF). It also lacked a fiscal council’.27 It was the eurozone crisis that dictated the introduction of such institutions and arrangements. Law 20(I)2014 established a binding MTBF called Strategic Framework of Fiscal Policy [Στρατηγικό Πλαίσιο Δημοσιονομικής Πολιτικής]. This new arrangement institutionalises expenditure rules. In particular, Article 5 of the law states that the government is responsible for ensuring that the correct implementation of the fiscal policy including the annual budget and the structural reforms are compatible with the relevant EU legislation including the Fiscal Compact. The same law established RoC’s Fiscal Council as well. According to the Preamble, the Fiscal Council is an independent institution with consulting powers that is competent and responsible to evaluate, produce and adopt the macroeconomic and budgetary forecasts. In particular, there is nothing in this law that amends the aforementioned constitutional rules with regard to the budgetary process as such. However, Article 19 entrusts the Fiscal Council with supervising the compliance with RoC’s obligations ‘deriving from the TFEU in the area of budgetary policy over a multiannual framework’ in accordance with Article 5 of Directive 2011/85.

C.  Rules Governing Closely Related Instruments Outside the EU Legal Order No constitutional amendments have taken place in relation to the measures adopted within the EMU framework but outside the EU legal order. As has been the case with the crisis management measures that we examine in the next section, those measures have been transposed into the national legal order by means of ordinary legislation. The great majority of the instruments, including the ESM Treaty which was ratified through Law 14 (III) of 2012, were adopted under Article 169(2) of the RoC Constitution on ‘treaties, conventions and international agreements’. This provision requires a simple majority in parliament.28 Accordingly, any other treaty, convention or international agreement shall be negotiated and signed under a decision of the Council of Ministers and shall only be operative and binding on the Republic when approved by a law made by the House of Representatives whereupon it shall be concluded.

The only exception so far has been the Fiscal Compact. Because of its significance, there was a debate in the House of Representatives about a possible constitutional amendment.29 The House noted that ‘the ratification of the Fiscal Compact was a prerequisite for a Member State to be considered eligible to apply for financial assistance from the European Stability Mechanism’.30 Given the financial pressure under which RoC found itself in 2012, they decided that it is prudent to opt for a fast implementation of the Fiscal Compact through law rather than the lengthier procedure of constitutional amendment. In fact, the Fiscal Compact was adopted under Article 169(1) by an Act of the Council of Ministers (governmental decree) on 20 April 2012, without even a vote in the parliament. It was later ratified and published in the Official Journal of the Republic of Cyprus upon the Cypriot

27 Ekaterini Pantazatou, ‘Constitutional Change through Euro Crisis Law: Cyprus’, available at eurocrisislaw.eui.eu/ wp-content/uploads/sites/44/2019/05/Cyprus.pdf. 28 Art 78 of the Constitution of the RoC. 29 Pantazatou, ‘Cyprus’. 30 Ibid.

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Council of Ministers’ decision, in accordance with Article 169 (3) of the Constitution, in Greek and English.31 The ratification was completed by the notification to the Council of the EU on 3 July 2012.

III.  Constitutional Obstacles to EMU-Integration A.  Amendable and Unamendable Constitutional Provisions Article 182 of RoC’s Constitution distinguishes between basic and non-basic constitutional provisions. According to paragraph 1, the basic constitutional provisions ‘cannot, in any way, be amended’. A list of those unamendable provisions can be found in Annex III of the Constitution. Those provisions correspond to the 27 Articles of the 1959 Agreement between the three Guarantor States – Greece, Turkey and the UK – and the two main ethno-religious communities concerning the basic constitutional structure of the RoC. They contain rules related to the composition of the main institutions of the state. As mentioned in section II of the present chapter, RoC’s Constitution embodies all characteristics of a consociational arrangement. The aim of the aforementioned unamendable articles was to describe the basic constitutional structure of a post-conflict arrangement. In that sense, they do not relate to any shape or form with RoC’s membership either to the EU or to EMU. This is particularly important for further EMU integration. There is nothing in the current Cypriot constitutional framework that limits such further integration. However, the Cypriot constitutional order is more flexible than its written Constitution suggests. Such flexibility is exemplified by the existence of the doctrine of necessity. Because of that, there is a huge discrepancy between the written and the material constitution. Even basic unamendable constitutional provisions have de facto been amended. As already explained, the case of Mustafa Ibrahim that established the doctrine of necessity was about the amendment of two ‘unamendable’ constitutional provisions that related to the composition of the High Court of Justice and the Supreme Constitutional Court. Even the article that regulates the amendment of RoC’s Constitution has been de facto amended in accordance with the doctrine of necessity. According to Article 182(3), any non-basic constitutional provision could be enacted ‘by a majority vote comprising at least two-thirds of the total number of the Representatives belonging to the Greek Community and at least two-thirds of the total number of the Representatives belonging to the Turkish Community’. In reality, the ten formal amendments to the constitution have been enacted after two-thirds of the Greek-Cypriot representatives have approved them. One of those amendments relates to the EU membership as we will see.

B.  Accepting the Primacy of EU Law RoC’s legal order has recognised and accepted the foundational EU law principles of direct effect32 and primacy.33 In particular, Cyprus’s accession to the EU was effected through the passing of

31 Official 32 Case 33 Case

Journal of the Republic of Cyprus 4157/29 June 2012. Van Gend en Loos, 26/62 N, [1963] ECR 1. Costa v ENEL 6/64 [1964] ECR 585.

Cyprus  369 Law 35(III) of 2003 by the House of Representatives. Article 4 of this law, entitled ‘Direct effect and supremacy’ provided that The rights and obligations that the Treaty [of accession] imposes have direct effect in the Republic and prevail over any contrary legislative or regulative provision.

At the time of accession, it was considered that no amendment to the Constitution would be necessary in order to give precedence to the application of EU law. However, following Supreme Court’s decision in Attorney General v. Kostas Konstantinou34 according to which the legislation transposing the Framework Decision for the European Arrest Warrant was found unconstitutional, the fifth amendment of the Constitution was deemed inevitable. Law 127/06 amended four of the Constitution’s Articles in order to provide expressly for the primacy of EU law including EMU law in the domestic legal order.35 This amendment intended to settle in a definite manner the hierarchy of norms in Cyprus, by setting the EU at the top of the scale, followed by the Constitution and then ordinary legislation. Article 1A of the Constitution now reads: No provision of the Constitution is deemed to invalidate laws which are promulgated, acts effected or measures taken by the Republic which are rendered necessary due to its obligations as a member state of the European Union, nor does it prevent Regulations, Directives or other acts or binding measures of legislative character promulgated by the European Union or by the European Communities or by their institutions or competent bodies on the basis of the treaties founding the European Communities or the European Union from having legal force in the Republic.

In that sense, the sweeping provision of Article 1A of the constitution of Cyprus explicitly recognises the primacy of EU law, including the law related to EMU.

C.  Crisis Management Measures As already explained in a previous section, no constitutional amendments have taken place in relation to crisis management measures. All the crisis management measures have been transposed into the national legal order by means of ordinary legislation via Article 169(2) of the RoC Constitution requiring a simple majority in the parliament. In particular, the European Financial Stability Facility (EFSF) was implemented in Cyprus through Law 13 (III) of 2010 with the title ‘The law on the participation of the Republic of Cyprus in the European Financial Stability Facility’.36 The amendment of Article 136 TFEU was approved by Law 13 (III) of 2012. The Stability and Growth Pact reform of the ‘Six-Pack’ was implemented through Law 194 (I) of 2012 on the Medium Term Budgetary Framework and the Fiscal Rules.37 Even the Memorandum of Understanding and the Financial Assistance Facility Agreement through which Cyprus received financial support were ratified through Law 1 (III) of 2013 as we will discuss in the following section. Unlike what happened with the measures that related to RoC’s bail-out where there have been significant contestations, the aforementioned crisis management measures have been largely uncontested. Only with regard to Law 194 (I) of 2012 that implemented the ‘Six-Pack’ there was



34 Attorney

General v. Kostas Konstantinou, Civil Appeal No. 294/2005 (Supreme Court of Cyprus, 7 November 2005). 1, 140, 169 and 179 of the Constitution were amended. 36 Pantazatou, ‘Cyprus’. 37 Ibid. 35 Arts

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a discussion on whether this law should acquire constitutional status.38 The rationale behind that proposal was to ensure that ‘no budget that does not fulfill the requirements of the Medium Budgetary Framework can be examined, debated and decided before the Parliament’.39 However, the House of Representatives decided against such an option.

D.  RoC’s Bail-out i.  Basic Elements of RoC’s Bail-out Before the crisis, the Cypriot banking sector represented 550 per cent of the national gross domestic product. Although such percentage was not the highest among the 28 EU Member States, the Cypriot overgrown banking system proved particularly vulnerable. One of the main reasons40 was that the Cypriot banks invested heavily in the purchase of Greek government bonds before the crisis. So, when the so-called ‘Troika’ decided to reduce the Greek bonds’ face value held by the private sector, the ‘Cypriot banks experienced immediately huge losses being among the largest underwriters of Greek public debt’.41 The economic situation further worsened after the 2011 Mari tragedy where the main electricity production unit of the island was destroyed.42 On 25 June 2012, the Cypriot government led by then President Christofias submitted a request for stability support to the President of the Eurogroup. In November 2012, the government announced that a preliminary agreement on the terms of a Memorandum of Understanding (MoU) was reached while ‘Troika’ affirmed that significant progress was indeed made. The preliminary MoU was signed later that month. However, in an act of political expediency, the Christofias’ administration proved unwilling to sign the final agreement because of the perceived political cost just before the pending presidential elections. In February 2013, Nicos Anastasiades was elected as the new President of the Republic. A month later, given the growing financial pressures, his administration reached an agreement on a financial package. This initial agreement reached on 16 March 2013 envisaged a 10 billion euro bail-out. Additionally, it provided for a significant bail-in whereby deposits of ‘the failing banks’ would be used to raise revenue. In fact, the terms of the agreement required Cyprus to raise an additional 6 billion euros by imposing a bank levy of 9.9 per cent on uninsured deposits (ie, deposits over 100,000 euros) and 6.75 per cent on insured deposits (ie, deposits under 100,000 euros). However, on 19 March 2013, all political parties represented in RoC’s legislature rejected the agreement with the exception of the governing party – Democratic Rally – that abstained from the vote. Two days later, the European Central Bank decided to keep the liquidity provision via the Emergency Liquidity Assistance (ELA) only until the 25 March 2013. This gave four days to the Republic to reach a new agreement with its lenders that would ensure the solvency of its banks. Failing to reach an agreement, the immediate bankruptcy of the second largest bank on 38 Pantazatou, ‘Cyprus’. 39 Ibid. 40 For an analysis of the economic policies that led to the crisis, see Michalis Sarris, ‘Cyprus in the Eurozone’ in A Michaelides and A Orphanides (eds) The Cyprus Bail-In: Policy Lessons from the Cyprus Economic Crisis (London, Imperial College Press, 2016) 3; Athanasios Orphanides, ‘What happened in Cyprus? The Economic Consequences of the Last Communist Government in Europe’ in A Michaelides and A Orphanides (eds) The Cyprus Bail-In: Policy Lessons from the Cyprus Economic Crisis (London, Imperial College Press, 2016) 163. 41 Giovanni Batista Donato, ‘The Cyprus Crisis and the Legal Protection of Foreign Investors’ (2015)3 Asimmetrie Working Papers. 42 See www.bbc.co.uk/news/world-europe-14102253.

Cyprus  371 the island, Laiki Bank was in sight. That would have led to the bankruptcy of the Republic who had guaranteed its bonds. On 22 March 2013, RoC’s House of Representatives passed Law 17(I)/2013 on The Resolution of Credit and Other Institutions Law and Law 12(I)/2013 on The Enforcement of Restrictive Measures on Transactions in Case of Emergency Law. With the former, the Central Bank of Cyprus was appointed as the Resolution Authority in charge of the downsizing and recovery process of the Cypriot banking sector. With the latter, capital controls were imposed. On 25 March 2013, a second agreement was reached between the RoC, the Eurogroup and IMF that was providing for ESM assistance among else. Accordingly, the Republic was offered 10 billion euros in return for a commitment that it would raise 4 billion euros to meet relevant liabilities. The Eurogroup Statement on Cyprus provided that: 1. 2. 3.

4. 5. 6. 7. 8.

Laiki will be resolved immediately – with full contribution of equity shareholders, bond holders and uninsured depositors – based on a decision by the Central Bank of Cyprus, using the newly adopted Bank Resolution Framework. Laiki will be split into a good bank and a bad bank. The bad bank will be run down over time. The good bank will be folded into Bank of Cyprus (BoC), using the Bank Resolution Framework, after having heard the Boards of Directors of BoC and Laiki. It will take 9 billion Euros of ELA with it. Only uninsured deposits in BoC will remain frozen until recapitalisation has been effected, and may subsequently be subject to appropriate conditions. The Governing Council of the ECB will provide liquidity to the BoC in line with applicable rules. BoC will be recapitalised through a deposit/equity conversion of uninsured deposits with full contribution of equity shareholders and bond holders. The conversion will be such that a capital ratio of 9% is secured by the end of the programme. All insured depositors in all banks will be fully protected in accordance with the relevant EU legislation. The programme money (up to 10bn Euros) will not be used to recapitalize Laiki and Bank of Cyprus.43

Following this and given its function as the Resolution Authority under Law 17(I)/2013, the Central Bank of Cyprus issued a number of decrees44 with which they implemented the aforementioned required policies. The practical effect of the implemented policies was that a number of depositors of Laiki and Bank of Cyprus faced a significant decrease in their deposit. Unsurprisingly, those policies were far from popular.

ii.  National Case Law More than 3,000 legal challenges in the form of administrative actions were raised against the validity of Law 17(I)/2013. At the same time, most of those claims also challenged Law 12(I)/2013, which imposed capital controls on the island. In a nutshell, the applicants in those claims were arguing that Law 17(I)/2013 breached their right to property as enshrined in Articles 23 of the Constitution and 1 of Protocol No 1 of the European Convention of Human Rights while Law 12(I)/2013 breached Article 63 TFEU which provides for the free movement of capital. The first case where those challenges were discussed was Christodoulou and Others v Central Bank of Cyprus and Others.45 The Supreme Court found all the administrative actions 43 Available at www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/136487.pdf. 44 Governmental Decrees 93/2013, 25.3.2013; 94/2013, 25.3.2013; 96/2013, 26.3.2013; 97/2013, 26.3.2013; 103/2013, 29.3.2013; 104/2013, 29.3.2013; 105/2013, 1.4.2013. 45 Christodoulou and Others v Central Bank of Cyprus and Others, Reference No 1480/11, (Supreme Court of Cyprus, 7 June 2013).

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inadmissible. According to the Supreme Court, none of the aforementioned decrees regulated the relationship between the RoC and its citizens. Instead, they were merely regulating the functioning of the two banks: Laiki and the Bank of Cyprus. The affected depositors had a contractual relationship with the banks and not the state. As such, they did not enjoy direct locus standi to challenge those administrative actions. In any case, the Court held that the reduction was an act under the private law involving the contractual obligations of the banks to their depositors. In that sense, the depositors were advised to raise civil lawsuits against the banks and the state institutions. According to the Court, it would be important for the depositors to show that the loss they have suffered is greater than the loss they would have suffered if those decrees had not been issued.46 Affected shareholders of the banks also challenged those decrees. Interestingly, they tried to distinguish their cases from the one in Christodoulou. They argued that given that they own shares of the banks, the decrees directly applied to them. As such, unlike affected depositors, they did enjoy locus standi. In Stratouras and Others v Central Bank of Cyprus and Others,47 the Supreme Court rejected that argument. ‘Given that there is a contractual link between the bank and the shareholders, we believe that the rationale of Christodoulou applies mutatis mutandis in this case as well’.48 Apart from the bailout, also measures of austerity and fiscal discipline that were imposed by the Cypriot government have been challenged. For instance, Law 112(I)/2011 with which the Republic was imposing a cut to the wages of civil servants in order to deal with the financial crisis was challenged in Charalambous and Others v Minister of Finance and Others.49 To the extent that the law applied only to workers in the public sector, the applicants claimed that it was breaching the principle of equal treatment enshrined in Articles 24 and 28 of the Constitution. They also argued that it violated the right to property in accordance with Articles 23 of the Constitution and 1 of Protocol No 1 of the European Convention of Human Rights. However, similar to what courts in Portugal50 and Greece51 have decided, the Supreme Court of Cyprus allowed for a significant margin of appreciation to the legislature. [T]he extremely difficult financial situation allowed [the legislator] to take emergency measures to the extent that they were not unconstitutional in order to effectively face the situation and reduce the Republic’s expenses particularly with regard to the salaries of the civil servants.52

Having said that, the Supreme Court was more sensitive to the claims of a special group of employees in the public sector, namely the judges. The aforementioned Law 112(I)/2011, cutting the salaries of civil servants was found to be unconstitutional with respect to the judges. The Supreme Court held in Fylaktou and Others v Republic of Cyprus and Others that the law was 46 Ibid. 47 Stratouras and Others v Central Bank of Cyprus and Others, Reference No 1034/2013, (Supreme Court of Cyprus, 9 October 2014). 48 Ibid. ‘Ως εκ του γεγονότος ότι μεταξύ τράπεζας και μετόχου υφίσταται συμβατική σχέση, κρίνουμε ότι τα όσα έχουν λεχθεί στην απόφαση Χριστοδούλου, σε σχέση με τους καταθέτες ισχύουν αναλόγως και στην υπό κρίση περίπτωση.’ [unofficial translation]. 49 Charalambous and Others v Minister of Finance and Others, Reference No 1480/2011, (Supreme Court of Cyprus, 11 June 2014). 50 Diario da Republica, 1a série – No 140 (20 July 2012) 3846 and Diario da Republica, 1a série – No 78 (April 22, 2013) 2328. 51 Athens Bar Association and Others v Minister of Finance, Reference No 668/2012 (Symvoulio tis Epikrateias, 20 February 2012). 52 Charalambous and Others. Mπροστά στην εξαιρετικά δύσκολη οικονομική κατάσταση που είχε διαμορφωθεί, κατά την κρίση μας είχε την ευχέρεια να λάβει έκτακτα μέτρα, νοουμένου ότι αυτά δεν θα ήταν ασύμφωνα με το Σύνταγμα, για εξισορρόπηση της κατάστασης και για συγκράτηση των δημοσίων οικονομικών του και ιδιαίτερα σε σχέση με όσους απασχολούνταν στο δημόσιο τομέα. [unofficial translation].

Cyprus  373 violating Article 158(3) of the Constitution.53 According to the latter, ‘[t]he remuneration and other conditions of service of any … judge shall not be altered to his disadvantage after his appointment.’ Accordingly, a general tax law, affecting all taxpayers in the country, could only reduce the compensation of the judges. The challenged law did not qualify as such. Interestingly, the Attorney General argued that the doctrine of necessity should apply in the case in view of the dramatic financial situation in which the country found itself. The Supreme Court was not convinced. In particular, they held that the need to safeguard the independence and impartiality of the judiciary was more important than including a relatively small number of persons (the judges) in those sharing the burden caused by the adverse financial situation.54 Similarly, in Koutselini-Ioannidou and Others v Republic of Cyprus,55 the Supreme Court discussed whether the suspension of pensions of retired civil servants and public officers who, after their retirement, have been re-employed in the public sector is constitutional. It found that such suspension is unconstitutional as it breaches the rights to property enshrined in Art 23 of the Constitution and Art 1 of Protocol 1 ECHR and to equal treatment enshrined in Art 28 of the Constitution.

iii.  CJEU Case Law As mentioned above, Cyprus received financial assistance from the ESM in 2013. Part of the conditionality of this assistance was linked to the recapitalisation of the BoC and the winding down of Laiki. Interestingly, because of the bail-in, the shareholders and the depositors of those banks had to bear part of the cost and suffered significant financial losses. As a result, apart from filing claims in the Cypriot courts, they also turned to EU courts. In Mallis56 the applicants challenged the aforementioned Eurogroup statement of 25 March 2013.57 In Ledra Advertising, they challenged the MoU.58 Their argument in those cases was that given that the EU institutions were involved in the adoption of those policies, it should be possible for individuals to challenge their validity under EU law in accordance with Article 263 TFEU. They also asked for damages.59 As in Pringle,60 the Court rejected those arguments. With regard to the Eurogroup statement, the CJEU made clear that the fact that the Commission and the ECB participate in the meetings of the Eurogroup does not alter the nature of the latter’s statements and cannot result in the statement at issue being considered to be the expression of a decision-making power of those two EU institutions61

The Eurogroup statement does not ‘create a legal obligation on the Member State concerned to implement the measures which it contains’.62 ‘[T]hat statement, of a purely informative nature, 53 Fylaktou and Others v Republic of Cyprus and Others, Reference No 397/2012 (Supreme Court of Cyprus, 14 June 2013). 54 Ibid. 55 Koutselini-Ioannidou and Others v Republic of Cyprus, Reference No 740/11 (Supreme Court of Cyprus, 7 October 2014). 56 Joined Cases Mallis and Others C-105/15 P to C-109/15 P, ECLI:EU:C:2016:702. 57 Above n 43. 58 Joined Cases Ledra Advertising Ltd and Others C-8/15 P to C-10/15 P, ECLI:EU:C:2016: 701. 59 For a succinct discussion of both cases see Alicia Hinarejos, ‘Bailouts, Borrowed Institutions and Judicial Review: Ledra Advertising’, EU Law Analysis (25 September 2016) available at eulawanalysis.blogspot.com/2016/09/bailoutsborrowed-institutions-and.html. 60 Case C-370/12, Pringle EU:C:2012:756. 61 Mallis (above n 56) para 57. 62 Ibid, para 58.

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was intended to inform the general public of the existence of a political agreement between the Eurogroup and Cypriot authorities’.63 Accordingly, the subsequent actions of RoC’s government ‘cannot be regarded as having been imposed by a supposed joint decision of the Commission and the ECB’.64 Even if the acts of the Cypriot government can be politically attributed to the Eurogroup statement, legally speaking, the CJEU seems to follow in Mallis the line of argument that was first created in Pringle.65 The acts that intended to address the eurozone crisis, by and large, fall outside the remit of the EU legal order. That line has been reaffirmed in Ledra Advertising where the CJEU highlighted that ‘the fact that one or more institutions of the EU may play a certain role within the ESM framework does not alter the nature of the acts of the ESM, which fall outside the EU legal order’.66 However, given that the Commission per Article 17(1) TEU has an obligation to ‘promote the general interest of the Union’ and to ‘oversee the application of Union law’,67 it should ‘ensure that the memoranda of understanding concluded by the ESM are consistent with EU law’.68 This means that ‘it should refrain from signing a memorandum of understanding whose consistency with EU law it doubts’.69 In this particular case, however, the Court held that the measures taken by the Cypriot agreement following its agreement with its lenders ‘cannot be regarded as unjustified restrictions on’ the right of property.70 As such, ‘the Commission cannot be considered … to have contributed to a breach of … Article 17(1) of the Charter’.71

E.  Constitutional Law Scrutiny of EMU Reform Scenarios Although the Cypriot Constitution was designed to be quite rigid, the historical and political developments on the island and especially the introduction of the doctrine of necessity have de facto shaped a very different, much more flexible constitutional reality. With regard to the EU and EMU membership, in particular, this flexibility has been further enhanced by Article 1A of RoC’s Constitution. This provision recognises the primacy of present and future primary and secondary EU law. In a way, this provision pre-empts potential conflicts between EU law, including EMU related law and Cypriot constitutional law. In that sense, and with regard to the EMU reform scenarios,72 the Cypriot constitutional law does not seem to contain any insurmountable barriers to the further transfer of powers even if it takes place through Treaty amendments. The absence of legal mechanisms such as ultra vires review and binding instructions to the Minister(s) in Council make it almost impossible to attack legally proposals such as the creation

63 Ibid, para 59. 64 Ibid, para 60. 65 See in particular Pringle (above n 60) para 156–7. 66 Ledra Advertising (above n 58) para 54. 67 Ibid, para 57 referring to para 163 of Pringle. 68 Ibid, para 58. 69 Ibid, para 59. 70 Ibid, para 74. 71 Ibid, para 75. 72 See for example Rules to enhance fiscal discipline and structural reforms European Commission, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States; European Commission, COM (2017)826 Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing

Cyprus  375 of a European Minister of Economy and Finance and the initiative to anchor the existing intergovernmental crisis management body, the European Stability Mechanism, in the Union legal framework. In fact, it must be noted that even the implementation of the entirety of crisis-related measures took place without any constitutional amendment. The aforementioned flexibility of the Cypriot constitutional order allowed even the Fiscal Compact and the controversial and painful bail-in to be implemented without amending the Constitution. So, it is safe to assume that initiatives that relate to the strengthening of the fiscal responsibility and the medium-term budgetary orientation in the Member States and the Banking Union insurance mechanisms will not meet significant resistance from the Cypriot constitutional order. This conclusion is also supported by the fact that so far those initiatives have not raised any significant objections in parliament or the public sphere in general.

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law As mentioned before, the vast majority of EMU related law, including the crisis management measures have been transposed into the national legal order by means of ordinary legislation. In particular, they were adopted under Article 169(2) of the RoC Constitution that requires a simple majority in parliament. In that sense, the implementation of those laws has not posed any significant challenge from a procedural point of view. Article 169(2) procedure is the primary method for the national parliament to implement EMU secondary law. It is through this process that requires a simple majority that the House of Representatives can exercise control over EMU related legislation. This is particularly important if one takes into account Article 50 of the Constitution. Apart from the aforementioned process, it is also important to note the role of the parliament to the budget procedure as an important channel for the implementation of national law that has to be compatible with EMU related law. Details on the budget procedure are provided in Articles 81, 167 and 168 of the Constitution of the RoC. According to them, the Parliamentary Committee of Finance submits for discussion the Budget Draft Bill, which is then deliberated in the parliament, sitting in plenary session, and approved (or rejected) by simple majority as an ordinary law. Notwithstanding, it is the Minister of Finance that holds the main role in economic policy coordination at EU level. According to Article 3(1) of Law 194 (I) of 2012, every Ministry and every Independent Agency has to send to the Minister of Finance the revenue and expenditure forecasts of their Ministry (or Agency) for the next three financial years.

V.  Resulting Relationship between EMU Related Law and National Law Because of its idiosyncratic nature, the Cypriot constitutional order has proved flexible enough to face effectively the challenges arisen due to its membership to the EMU. RoC managed to Council Regulation (EC) No 1083/2006; European Commission, COM(2017) 827 Proposal for a Council Regulation on the establishment of the European Monetary Fund; Macroeconomic stabilisation mechanism for asymmetric economic shocks and eurozone fiscal capacity; European Commission, COM (2017)822 Communication on new budgetary instruments for a stable eurozone within the Union framework; European Commission, COM (2017)823 Communication – A European Minister of Economy and Finance.

376

Nikos Skoutaris

implement in an almost seamless fashion the swathes of different legislative instruments that are linked to the EMU. This is not to suggest that there have not been tensions. The implementation of the policies associated with the financial assistance programme led to thousands of legal challenges in the Cypriot and the EU courts. In particular, a significant number of Cypriot citizens claimed that the stringent fiscal discipline measures and especially the bail-in that were imposed on Cyprus violated their fundamental rights, including the right to property. The judiciary found itself in the unenviable position of trying to strike a balance between the effective protection of the fundamental rights of the citizens and the financial survival of the state. Like many other states, they decided to provide for significant deference to the democratically elected political institutions. What is particularly interesting in the case of Cyprus is that despite the fact that the judiciary has recognised the existence of the doctrine of necessity within the constitutional order, that it did not come into play with regard to the financial survival of the state. Apart from the unavoidable challenges that were raised by the financial crisis and the reforms that were imposed on Cyprus, the EMU membership could be also seen as a conduit of modernisation of the fiscal structures of the Cypriot state. It is because of the EMU membership, for instance, that Cyprus has now a Fiscal Council and has adopted the ‘golden rule’ of fiscal prudence. So, if there are any lessons to be learned from Cyprus, those are rather mixed. On the one hand, the EMU membership has been used as a lever of modernisation. On the other, the reforms introduced by the country-specific crisis management measures have been perceived as rather aggressive, and in some cases, as breaching the fundamental rights of the Cypriot citizens. In any case, the flexibility that characterises the Cypriot constitutional system means that Cyprus will not impose significant hurdles in the further integration of the EMU in the future, provided that its political elites do not fundamentally disagree with it. The present discussion is accurate only to the extent that the current constitutional framework exists. Although this holds true for every country, in the case of Cyprus, it is slightly different given the never-ending negotiations for the reunification of the island. If the negotiations are ever successful and both communities accept the new settlement, the reunified Cyprus will be a federal state with a very different constitutional architecture. In that case, we would have to reassess whether the new constitutional order poses any hurdles to further EMU integration.

References Case Athens Bar Association and Others v Minister of Finance, Reference No 668/2012 (Symvoulio tis Epikrateias, 20 February 2012). Case Attorney General of the Republic v Mustafa Ibrahim [1964] CLR 195. Case Attorney General v. Kostas Konstantinou, Civil Appeal No. 294/2005 (Supreme Court of Cyprus, 7 November 2005). Case Charalambous and Others v Minister of Finance and Others, Reference No 1480/2011, (Supreme Court of Cyprus, 11 June 2014). Case Christodoulou and Others v Central Bank of Cyprus and Others, Reference No 1480/11, (Supreme Court of Cyprus, 7 June 2013). Case Costa v ENEL 6/64 [1964] ECR 585. Case Fylaktou and Others v Republic of Cyprus and Others, Reference No 397/2012, (Supreme Court of Cyprus, 14 June 2013). Case Koutselini-Ioannidou and Others v Republic of Cyprus, Reference No 740/11 (Supreme Court of Cyprus, 7 October 2014). Case Pringle C-370/12, EU:C:2012:756.

Cyprus  377 Case Stratouras and Others v Central Bank of Cyprus and Others, Reference No 1034/2013, (Supreme Court of Cyprus, 9 October 2014). Case Van Gend en Loos 26/62 NV, [1963] ECR 1. Joined Cases Ledra Advertising Ltd and Others C-8/15 P to C-10/15 P, ECLI:EU:C:2016: 701. Joined Cases Mallis and Others, C-105/15 P to C-109/15 P, ECLI:EU:C:2016:702. European Commission, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States. European Commission, COM (2017)826 Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006. European Commission, COM (2017) 827 Proposal for a Council Regulation on the establishment of the European Monetary Fund; Macro-economic stabilisation mechanism for asymmetric economic shocks and Euro area fiscal capacity European Commission. European Commission, COM (2017)822 Communication on new budgetary instruments for a stable euro area within the Union framework. European Commission, COM (2017)823 Communication – A European Minister of Economy and Finance. GB Donato, ‘The Cyprus Crisis and the Legal Protection of Foreign Investors’ in Asimmetrie Working Papers 2015/3. A Emilianides, ‘Accession of the Republic of Cyprus to the EU, the Constitution and the Cypriot Doctrine of Necessity’ (2007) The Cyprus Yearbook of International Relations 65. A Hinarejos, ‘Bailouts, Borrowed Institutions and Judicial Review: Ledra Advertising’, EU Law Analysis (September 25, 2016) available at eulawanalysis.blogspot.com/2016/09/bailouts-borrowed-institutionsand.html. N Kyriakou, ‘Report on Cyprus’ in G Martinico and O Pollicino (eds) The National Judicial Treatment of the ECHR and EU Laws: A Constitutional Comparative Perspective (Groningen, Europa Law Publishing, 2010) 191. N Kyriakou, N Skoutaris, ‘Cyprus’ in S Griller et al (eds) National Constitutions and EU Integration (Oxford, Hart Publishing, forthcoming). A Orphanides, ‘What happened in Cyprus? The Economic Consequences of the Last Communist Government in Europe’ in A Michaelides and A Orphanides (eds) The Cyprus Bail-In: Policy Lessons from the Cyprus Economic Crisis (London, Imperial College Press, 2016) 163. E Pantazatou, ‘Constitutional Change through Euro Crisis Law: Cyprus’, available at eurocrisislaw.eui.eu/ wp-content/uploads/sites/44/2019/05/Cyprus.pdf. M Sarris, ‘Cyprus in the Eurozone’ in A Michaelides and A Orphanides (eds) The Cyprus Bail-In: Policy Lessons from the Cyprus Economic Crisis (London, Imperial College Press, 2016) 3. N Skoutaris, The Cyprus Issue: The Four Freedoms in a (Member-) State of Siege (Oxford, Hart Publishing, 2011).

378

15 Latvia DITA PLEPA

Abstract: This report provides an analysis of the establishment, development and transformation of the Latvian monetary system in the framework of Latvia’s participation in the EU. In 2003, the Latvian Constitution, the Satversme, was amended to provide for Latvia’s accession to the EU. Article 68 of the Satversme provides that Latvia’s EU membership shall be decided by a national referendum, which is to be proposed by the parliament. Latvia joined the EU on 1 May 2004. An obligation to accede to the EMU was derived directly from the Accession Treaty and confirmed by those voting in favour of EU accession. On 1 January 2014, Latvia became the 18th member of the eurozone. The Constitutional Court has defined the boundaries of Latvia’s integration in the EU. Furthermore, the Satversme also limits the delegation of competencies in the context of further EU integration. According to the Constitutional Court, the integration of EU law into Latvia’s legal system is only permissible if the EU law is compatible with the principles of a democratic state and sovereign people that follow from Article 1 and 2 of the Satversme. Latvia supports, in general, the deepening and strengthening of the EMU to improve the competitiveness of the EU and eurozone and their resilience against various economic challenges. Key words: constitutional order; judicial review of economic measures; sustainable fiscal policy principle; fiscal rules.

I.  Main Characteristics of the National Constitutional System and Constitutional Culture The Satversme (Constitution) of the Republic of Latvia1 was adopted on 15 February 1922 and can be recognised as one among the oldest constitutions in Europe.2

1 The State of Latvia, proclaimed on 18 November 1918. 2 That is, following the restoration of independence, the Republic of Latvia did not draft a new Constitution but reinstated the pre-occupation Constitution. Over time, the mechanism of constitutional control, regulation of fundamental human rights and conditions for the EU membership were included in the Satversme. However, the provision of the institutional part of the Satversme has not been significantly amended since its adoption. See Kristīne Krūma and Dita Plepa, Constitutional law in Latvia (The Netherlands: Kluwer Law International, 2016), 11.

380  Dita Plepa After Latvia regained its independence from the USSR occupation in 1990, the Satversme3 became partially operational with the adoption of the Declaration of Independence on 4 May 1990 and subsequently with the constitutional law on 21 August 1991. The Latvian constitutional tradition is rooted in the concept of state continuity.4 Indeed, this approach continues in both internal and external relations.5 The existence of the constitutional institutions of Latvia is generally still justified by the fact that even after the events of 1940 Latvia had not lost its status as a subject of international law.6 Articles 1, 2, 3, 4 and 6 of the Satversme provide for the fundamental principles of the Latvian state regime.7 The Constitutional Court (Satversmes tiesa) has found it permissible to adopt laws, including laws on ratification of international or EU treaties, amending either textually or substantively Articles 1 and 2 of the Satversme. However, the Satversmes tiesa has also established that adoption of these laws without submitting them to a national referendum is unconstitutional according to Article 77 of the Satversme.8 The Satversme covers the following constitutional institutions: the totality of Latvia’s citizens, the Saeima, the president of the state, the cabinet of ministers, the State Audit Office, and the Constitutional Court. The Satversme establishes an exhaustive division of powers among these constitutional institutions. Hence, any powers of the state not granted to any constitutional institution of the state cannot exist, whereas the totality of powers of all the constitutional institutions of state power constitutes the total jurisdiction of the state.9 The Constitutional Court has a particularly important place and role in the constitutional order of the Republic of Latvia. It not only ensures the compliance of the statutes with the Satversme,10 but it is also a guarantor for the respect of human rights, and ensures that the principle of the division of powers is observed.11 3 The legal force of Satversme was suspended during the authoritarian regime from 1934–40 and then subsequently de facto by the occupation regime of the USSR from 1940–90. 4 Krūma and Plepa, Constitutional law in Latvia, 18. 5 Ziemele Ineta, State Continuity and Nationality: The Baltic States and Russia. Past, Present and Future as Defined by International Law (Leiden, Martinus Nijhoff Publishers, 2005). 6 Judgment of 29 November 2007 by the Constitutional Court in the Case No 2007-10-0102, para 33.2, available www.satv.tiesa.gov.lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2007/04/2007-10-0102_ Spriedums_ENG.pdf#search=2007-10-0102. 7 Art 1 of the Satversme provides: ‘Latvia is an independent democratic republic’. Art 2 of the Satversme provides: ‘The sovereign power of the State of Latvia is vested in the people of Latvia’. Art 3 of the Satversme provides: ‘The territory of the State of Latvia, within the borders established by international agreements, consists of Vidzeme, Latgale, Kurzeme and Zemgale’. Art 4 of the Satversme provides: ‘The Latvian language is the official language in the Republic of Latvia. The national flag of Latvia shall be red with a band of white’. Art 6 of the Satversme provides: ‘The Saeima shall be elected in general, equal and direct elections, and by secret ballot based on proportional representation’. 8 Judgment of 29 November 2007 by the Constitutional Court in the Case No 2007-10-0102, para 42.3, available at ww.satv. tiesa.gov.lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2007/04/2007-10-0102_Spriedums _ENG.pdf#search=2007-10-0102 and Judgment of 7 April 2009 by the Constitutional Court in Case No. 2008-35-01, available at www.satv.tiesa.gov.lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2008/09/200835_01_ENG.pdf#search=. 9 Judgment of 16 October 2005 by the Constitutional Court in the Case No 2006-05-01, paras 10.3 and 10.4, available at www.satv.tiesa.gov.lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2006/04/2006-05-01_ Spriedums_ENG.pdf#search=2006-05-01. 10 Art 85 of the Satversme provides, ‘In Latvia, there shall be a Constitutional Court, which, within its jurisdiction as provided for by law, shall review cases concerning the conformity of laws with the Constitution, as well as other cases conferred within the jurisdiction thereof by law. The Constitutional Court is entitled to declare laws or other enactments or parts thereof invalid. The Saeima shall confirm the appointment of judges to the Constitutional Court for the term provided for by law, with a majority of the votes of not less than fifty-one members of the Saeima’. This norm comprises three sentences that contain the basic rules regarding the functioning of the Constitutional Court.10 The Constitutional Court adjudicates cases regarding: 1) the conformity of laws with the Satversme; 2) the conformity of international agreements signed or entered into by Latvia (also until the ratification of the relevant agreements in the Saeima) with the Satversme;

Latvia  381 An initiation of a case to the Constitutional Court regarding the compliance of laws or international agreements signed or entered into by Latvia with the Constitution can be submitted by the president, 20 members of parliament, the cabinet of ministers, the Prosecutor General, the State Audit, the local government, the Ombudsman, any court, the State Justice Council, and natural and legal persons. Different requirements for application apply to groups of applicants.12 Pursuant to the principle of general jurisdiction, any law that complies with the definition of a law may be contested at the Constitutional Court. The concept of “law” also comprises the law that determines the annual state budget, which is an economic plan of the state adopted in accordance with the relevant legislative procedure.13 The Constitutional Court jurisdiction may not exceed the assessment of whether the procedure for adopting the state budget complied with the principles of law that follow from Article 1 of the Satversme.14 The Constitutional Court has often examined the issues of the state budget in conjunction with the regulation on taxes because taxes predominantly fulfil a fiscal function, ensuring revenue of the state budget and the budgets of local governments.15 The Constitutional Court has recognised that it cannot verify whether the measures selected by the legislator are economically substantiated. However, tax regulation should be based on objective and rational considerations. Therefore, the Constitutional Court must examine whether the restriction of a fundamental rights imposed by the obligation to pay a specific tax is appropriate for reaching its legitimate aim. In doing so, the Constitutional Court must verify whether the taxpayers, the taxable object and the principle for calculating the tax have not been established arbitrarily and whether the procedure for calculating the tax is such that would allow calculating the tax mathematically.16 The Constitutional Court is entitled to review the constitutionality of international agreements ratified by Latvia.17 Generally, an ex post review applies, and an ex ante review is only an exception for a particular legal act. This review includes international agreements before their ratification by the Saeima. If an ordinary court considers that a legal provision included in a law is unconstitutional, it must suspend legal proceedings and submit an application to the Constitutional Court.18 If the ordinary court considers that a legal provision contradicts EU law, it should request a preliminary ruling from the CJEU. Since 2008, Latvian courts have submitted 58 requests for a preliminary

3) the conformity of other laws and regulations or parts thereof with the norms (acts) of a higher legal rank; 4) the conformity of other acts of the Saeima, the cabinet, the president, the Speaker of the Saeima, and the prime minster, except for administrative acts, with the law; 5) the conformity with law of such an order with which a minister authorised by the cabinet has suspended a decision taken by a local government council; 6) the conformity of Latvian national legal norms with those international agreements which are entered into by Latvia and which are not in conflict with the Satversme. 11 Speech by the president of the Constitutional Court Ineta Ziemele at the opening ceremony of the European Law Institute conference. (2018), available at www.satv.tiesa.gov.lv/en/articles/speech-by-the-president-of-the-constitutionalcourt-ineta-ziemele-at-the-opening-ceremony-of-the-european-law-institute-conference/. 12 Constitutional Court Law. 13 Anita Rodiņa, ‘Constitutional Court and Protection of Fundamental Human Rights. Example of Latvia’ (2017) 43 Keizai Boeki Kenky. 14 Judgment of 3 February 2012by the Constitutional Court in the Case No 2011-11-01, available at www.satv.tiesa.gov. lv/web/viewer.html?file=/wp-content/uploads/2011/05/2011-11-01_Spriedums_ENG.pdf#search=. 15 The I·CONnect-Clough Center 2017, ‘Global Review of Constitutional Law Report of Latvia’ (2018), 175. 16 Judgment of 3 July 2015 by the Constitutional Court in the Case No 2014-12-01, available at www.satv.tiesa.gov.lv/ web/viewer.html?file=/wp-content/uploads/2014/05/2014-12-01_Spriedums_ENG.pdf#search=. 17 Constitutional Court Law of 5 June 1996, Art 16. 18 Constitutional Court Law of 5 June 1996, Art 17.

382  Dita Plepa ruling. Most of these references are sent by the Supreme Court, which can be explained by the obligation imposed by Article 267 TFEU.19 The Constitutional Court has examined the possibility of referring a question for a preliminary ruling to the CJEU in several cases.20 In 2017, the Constitutional Court became involved for the first time in this formal dialogue by sending a question to the CJEU.21 Pursuant to the doctrine of monism, binding norms of international and EU law apply directly in Latvia.22 The binding norms of international and EU law, regardless of their source, apply in accordance with their place in the hierarchy and have the legal force of external regulatory enactments. That is, they will prevail even if they conflict with a norm of Latvian law. Latvian legal acts must be interpreted in a way that would not lead to a conflict with Latvia’s commitments vis-à-vis the EU unless they conflict with the basic principles of the Satversme. The Constitutional Court is not an exception. Where appropriate, it has to guarantee that the protection offered under EU law is not theoretical, but effective. When deciding a case with an EU element, the Court will investigate whether it is possible to read the rules of constitutional importance in such a way that they include the protection offered under EU law. The Court has interpreted the Satversme in compliance with the obligations assumed by Latvia in becoming an EU Member State.23 In general, the Constitutional Court has opted for an EU-friendly approach.24 In Case No  2008-35-01, it indicated that the delegation of certain competencies to the EU should be regarded as using the sovereignty of the people to reach the aims outlined in the EU treaties rather than weakening their sovereignty. Neither the EU Treaties in force nor the objectives mentioned in Article 3 of the Treaty of Lisbon that the EU is striving to achieve within the frameworks of its competency, contradict the values and interests enshrined in the Satversme.25 However, the integration of EU law in Latvia’s legal system establishes certain restrictions that are permissible only if the EU law is compatible with the principles of the Satversme. The Satversme is directly and immediately applicable. The content of the constitutional norms is revealed through interpretation. The content of the concise text of the Satversme was analysed in rulings of the Constitutional Court and legal literature. Pursuant to Article 32(2) of the Constitutional Court Law, Constitutional Court judgments and the interpretations provided therein are obligatory for all state and local government authorities (also courts) and officials, as well as natural and legal persons.26

19 Representation of Latvia before the CJEU, available at www.tm.gov.lv/en/participation-in-eu/representation-oflatvia-at-the-ecj. 20 Judgment by the Constitutional Court of 28 May 2009 in Case No. 2008-47-01, Judgment of 19 October 2011 in Case No 2010-71-01, and Judgment of 13 October 2015 in Case No 2014-36-01. 21 The I·CONnect-Clough Center 2017 Global Review of Constitutional Law Report of Latvia (2018), 175. In Case No 2016-04-03 under review, the Constitutional Court has identified the need to refer questions to the CJEU for a preliminary ruling concerning the interpretation of a provision of Regulation No 1257/1999. The decision on referring questions to the CJEU for a preliminary ruling in Case No 2016-04-03 is available at www.satv.tiesa.gov.lv/wp-content/ uploads/2016/02/Decision-on-referring-questions-to-the-Court-of-Justice-of-the-European-Union-for-preliminaryruling-1.pdf. 22 Separate Opinion by the Justices of the Constitutional Court Sanita Osipova and Ineta Ziemele in Case No 2015-19-01, para 5. 23 Address by the judge of the Constitutional Court Daiga Rezevska to the representatives of the diplomatic missions in Latvia. Available at www.satv.tiesa.gov.lv/en/articles/address-by-the-justice-of-the-constitutional-court-daiga-rezevskato-the-representatives-of-the-diplomatic-missions-in-latvia/. 24 Krūma and Plepa, Constitutional law in Latvia, 82. 25 Judgment of 7 April 2009 by the Constitutional Court in Case No 2008-35-01, available at www.satv.tiesa.gov.lv/web/ viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2008/09/2008-35_01_ENG.pdf#search=. 26 Constitutional Court Law of 5 June 1996, Art 32.

Latvia  383

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  Integration in the EU In 2003, the Satversme was amended to provide for Latvia’s EU accession. The revisions were preceded by a scholarly debate as to whether amendments are required in Article  2 of the Satversme, which provides that sovereign power is vested in the people of Latvia. It questioned the legal option for the transfer of certain sovereign powers to the EU.27 The Saeima opted for minimal amendments of the Satversme. These amendments provided for the procedure to be followed upon accession to the EU and in cases of fundamental changes in the requirements for membership in the EU. According to the amendments to Article 68 of the Satversme, powers can be delegated to international institutions to strengthen democracy. This requires an affirmative vote of a two-thirds majority of the present MPs, the latter being at least two-thirds of the total number of MPs (the second part of Art  68 of the Satversme). Membership in the EU should be decided in a referendum upon an initiative from the Saeima (the third part of Art 68 of the Satversme). In cases when half of the MPs consider that fundamental changes in the conditions of membership take place, these changes should be confirmed by referendum (fourth part of Art 68 of the Satversme). In accordance with Article  79 of the Satversme, membership in the EU and substantive changes in the membership conditions are confirmed by referendum if at least half of the voters who participated in the last Saeima elections vote and a majority of the votes are favour.28 Latvia joined the EU on 1 May 2004. The national referendum of the accession of Latvia to the EU29 took place on 30 September 2003 in accordance with the provisions of the third part of Article 68 of the Satversme and the requirements of the second part of Article 79 of the Satversme.30 On 8 May 2008, the Saeima adopted a law called ‘On the Treaty of Lisbon Amending the Treaty on the European Union and the Treaty Establishing the European Community’. This law was adopted according to the procedure established in the second sentence of the second part of Article 68 of the Satversme.31 The amended Article 68 of the Satversme provides for an additional type of acts of constitutional rank. In particular, acts of constitutional rank can be adopted only in the cases established in the Satversme.32 Acts that are adopted according to the procedure in the second sentence of the 27 Krūma and Plepa, Constitutional law in Latvia, 23. 28 Ibid. 29 1.010.467 persons having the right to vote participated therein, 676.700 of whom voted ‘for’ the accession of Latvia to the EU. See: Judgment of 7 April 2009 by the Constitutional Court in Case No 2008-35-01, para 10, available at www. satv.tiesa.gov.lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2008/09/2008-35_01_ENG. pdf#search=. 30 Art 79 of the Satversme provides: ‘An amendment to the Constitution submitted for national referendum shall be deemed adopted if at least half of the electorate has voted in favour. A draft law, decision regarding membership of Latvia in the European Union or substantial changes in the terms regarding such membership submitted for national referendum shall be deemed adopted if the number of voters is at least half of the number of electors as participated in the previous Saeima election and if the majority has voted in favour of the draft law, membership of Latvia in the European Union or substantial changes in the terms regarding such membership’. 31 Judgment of 7 April 2009 by the Constitutional Court in Case No 2008-35-01, para 10, available at www.satv.tiesa.gov. lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2008/09/2008-35_01_ENG.pdf#search=. 32 Judgment of 29 November 2007 by the Constitutional Court in the Case No 2007-10-0102, para 56.3, available at www.satv.tiesa.gov.lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2007/04/2007-10-0102_ Spriedums_ENG.pdf#search=2007-10-0102.

384  Dita Plepa second part of Article 68 of the Satversme are adopted by the Saeima, ie, the Satversme. These acts are implemented according to the same procedure used for introducing amendments to those articles of the Satversme that shall not recognised as the constitutional basis of the Republic of Latvia.33 Article 68 of the Satversme prohibits the delegation of competences to other states or nondemocratic international institutions. In this context, it is important to establish to what extent competences are delegated or exercised and whether Latvia remains entitled to withdraw from arrangements that no longer correspond to the initial delegation. This means that EU treaties that are adopted according to the procedure established in the second part of Article  68 form part of the Satversme (acts of constitutional rank with higher legal force). The control over compatibility of a delegation with the Satversme rests with the Constitutional Court. The Satversme generally prohibits referendums on treaties. However, EU Treaty amendments would be treated differently if the MPs consider that the changes in the treaties are substantive (fourth part of Art 68, and Art. 79 and 73 of the Satversme). This difference in treatment is due to the amendments of Article 68 of the Satversme, which distinguished between two kinds of referendums in relation to the EU. One is the referendum on EU membership, which is obligatory. The other is a referendum on ‘substantial changes in the terms regarding the membership of Latvia in the EU’, which may only happen if half of the deputies in the Saeima initiate it.34

B.  Obligation to Join the Eurozone The transformation of Latvia’s monetary system began when Latvia was preparing to accede to the EU. Upon concluding the Treaty of Accession to the EU, Latvia also joined the EMU and committed to comply with the Maastricht convergence criteria and join the single currency union (the eurozone). The Treaty of Accession to the EU defines an international legal commitment. Latvia’s joining the Exchange Rate Mechanism II in 2005 when the national currency (LVL) was fixed against the euro was a particularly important step to financial stability.35 Latvia planned to introduce the euro previously in 2008, but the process was delayed by the economic crisis, which prevented Latvia’s full compliance with the criteria for introducing the euro. In 2008, one of the major systemic banks in Latvia went bankrupt, and over-expenditure of the state budget led to growing unemployment and insolvency for many companies and private households. From 2008 to 2010, the Latvian economy took one of the sharpest downturns in the world, when the drop in GDP reached 21 per cent. The financial assistance of the EU, the IMF, and the World Bank supported the economic recovery programme. Based on Latvia’s Convergence Programme for 2012–15, the government of Latvia with Order No 165 of 24 March 2010 set 1 January 2014 as the target date for introducing the euro.36

33 The requirements for amendments differ depending on the Art of the Satversme. Several core Articles can be amended only by the consent of the people (Arts 1, 2, 3, 4 and 79). Others require either absolute majority in the Saeima while simple majority voting is exceptional (Art 24). The general requirement for ratification of international agreements is absolute majority of two-thirds of MPs present. 34 Tanel Kerikmäe, Kristi Joamets, Jānis Pleps, Anita Rodiņa, Tomas Berkmanas and Edita Gruodyte, The Law of the Baltic States (Heidelberg, Springer, 2017) 174. 35 On Latvia’s National Euro Changeover Plan, available at www.eiro.lv/files/upload/files/struktura/95FCCD18394700 1362422214.pdf. 36 Anita Rodiņa and Dita Amoliņa, ‘Developments of the Constitutional Law in the Republic of Latvia in 2012. (2013) 25(3) European Review of Public Law, 89.

Latvia  385 Latvia’s National Euro Changeover plan was approved by the cabinet of ministers on 19 September 2012 and supplemented by a detailed Action Plan for the Introduction of the Single European Currency in Latvia. The Plan underlines measures to be implemented to ensure a successful euro changeover process in Latvia. The measures that were included in the Plan refer to the private as well as the public sector. On 9 July 2013, the EU Economic and Financial Affairs Council gave the final approval for Latvia’s participation in the eurozone from 1 January 2014. The Law on Introduction of Euro was adopted in 2013. It contains core provisions for the introduction of the euro. The draft law was outlined by the Ministry of Finance in cooperation with the other institutions involved in the euro project working groups.37 A two week period of parallel circulation of national cash currency (LVL) and euro was envisaged after the introduction of the euro. This period was set based on the experience of the other new eurozone Member States (Estonia, Slovakia and Slovenia).38 A negative public attitude towards the euro existed from 2012 when various groups started looking for legal ways to stop or prevent the introduction of the euro in Latvia. In that regard, on 20 December 2012, the party called All Latvia Social Democrats Movement ‘For Independent Latvia’ used its right of legislative initiative under the Satversme. In particular, it submitted to the Central Election Commission,39 an application for collecting signatures in favour of a draft law called ‘On the Participation of People in Deciding on the Term for Introducing Euro’. The draft law envisaged the participation of the people in deciding the date for introducing the euro in Latvia, providing that it was not introduced prior to 1 January 2012 and that a national referendum should be held on this issue.40 The Central Election Commission assessed whether the submitted draft law was fully elaborated as to its form and content and could be registered for a collection of signatures. It concluded that the draft law was not fully elaborated and if it were to be adopted, it would be incompatible with the Satversme and Latvia’s international commitments.41 The Central Election Commission noted that the Satversme exhaustively defined the cases of participation of the totality of the citizens as a body of state power. New types of national referendums may be defined only by introducing respective amendments to the Satversme and not by adopting a law, as this particular initiative envisaged. Furthermore, since the moment of EU accession, Latvia had also decided to participate in the EMU and take measures connected with the introduction of the euro. Thus, the issue of introducing the euro into Latvia stemmed from the terms of its EU membership. Moreover, Article 73 of the Satversme provides that treaties with foreign countries cannot be subject to referendums. Consequently, issues linked to meeting the commitments that follow from these treaties or suspending or terminating the treaties are also covered by Article 73 of the Satversme.42 The Central Election Commission also explained that it was possible to organise a national referendum on the membership in the EU.43 However, in such a case, it must comply with the provisions of the Satversme. In particular, substantial changes regarding the membership of

37 Order No 441 of the cabinet of ministers of 19 September 2012, ‘On the Latvia’s National Euro Changeover Plan’, available at www.eiro.lv/files/upload/files/struktura/95FCCD183947001362422214.pdf. 38 Ibid. 39 The Central Election Commission is a permanently functioning elected public institution which duties include preparations and conduct of Saeima, European Parliament and local elections, as well as national referendums and referendums on legislative initiatives. 40 Anita Rodiņa and Dita Amoliņa, ‘Developments of the Constitutional Law in the Republic of Latvia in 2012’. 41 Ibid. 42 Ibid. 43 Ibid.

386  Dita Plepa Latvia in the EU shall be decided by a national referendum if at least half of the members of the Saeima request such a referendum.44 Eventually, on 1 January 2014, Latvia became a member of the eurozone and this strengthened the Latvian financial system. Specifically, the credit ratings improved, the interest rates of financing attracted by the government and commercial companies decreased, which, in turn, lowered the costs of serving the sovereign debt.45

C.  Ratification of the Treaty on Stability, Coordination and Governance With the adoption of the Treaty of Lisbon, Latvia transferred certain economic policy competences to the EU and its institutions. This includes controlling excessive budget deficits and the surveillance of coordinated economic and fiscal policies. The TSCG was signed on behalf of the Republic of Latvia by Prime Minister Valdis Dombrovskis on 2 March 2012 in Brussels. Pursuant to Article 68 of the Satversme, the Saeima must decide on the ratification of the TSCG. In particular, Article 68 of the Satversme defines a different procedure if part of the competences of the Latvian state institutions is delegated to international bodies. Thus, the content of TSCG must be analysed to establish the correct parliamentary procedure. The Minister for Foreign Affairs established the Council of Independent Experts on International and European Law46 (Independent Expert Council) and asked it to analyse the essence of the TSCG from the perspective of EU law and point to the appropriate procedure for approving the Treaty from the perspective of the Satversme. The Independent Expert Council concluded that the TSCG must comply with the EU Treaties. Moreover, the TSCG continues the trend of attaining closer economic cooperation, which Latvia had previously supported at the political level. The Independent Expert Council noted that the TSCG comprised such provisions that were not included in applicable EU legal acts and reinforced some valid EU law rules on economic management. This reinforcement included raising secondary EU legal acts to the level of the provisions of the international agreement. The Independent Expert Council also found that the TSCG reinforced the Commission’s influence in the field of controlling the budgets of the TSCG parties. Furthermore, although the TSCG did not grant directly new authorisation to the Commission, it was possible that due to the interaction between some TSCG provisions, the Commission could expand the authorisation granted to it by the EU Treaties. The Independent Expert Council also recognised that the TSCG provided for a new procedure for controlling how the TSCG parties fulfilled the obligation to introduce into the national law ‘norms of a balanced budget’. The infringement procedure might turn from an intergovernmental one (the Council’s decision being challenged) into an interstate one before the CJEU. Moreover, although the Treaty of Lisbon grants the right to the EU institutions to adopt more detailed rules in the matter of controlling an excessive budget deficit and, for the eurozone members, also in other matters of budget discipline and the EU institutions have

44 Satversme of 15 February 1922, Art 68 (4). 45 Joining the Euro Area and Benefits for Latvia, available at www.eiro.lv/en/media/media-kit/joining-the-euroarea-and-benefits-for-latvia. 46 The Council of Independent Experts in International and European Law is an advisory body working under the direct leadership of the Minister of Foreign Affairs. The main objective of the Council is to promote the strengthening and development of the analysis of international law systems in Latvia. The Council’s viewpoints and expert opinions are of a recommendatory nature.

Latvia  387 already exercised it and plan to adopt new regulations; TSCG, nevertheless, transfers part of these regulations into the status of norms of an international agreement. Analysing the 1969 and 1986 Vienna Conventions, the Independent Expert Council recognised that the TSCG was an independent piece of international law. However, it should be treated as a de facto EU Treaty. Thus, the Independent Expert Council held that the appropriate ratification procedure for the TSCG at the Saeima was the one in the second part of Article 68 of the Satversme. That part provides Upon entering into international agreements, Latvia, with the purpose of strengthening democracy, may delegate a part of its State institution competencies to international institutions. The Saeima may ratify international agreements in which a part of State institution competencies are delegated to international institutions in sittings in which at least two-thirds of the members of the Saeima participate, and a two-thirds majority vote of the members present is necessary for ratification.

If the question were raised in the Saeima, whether the TSCG envisaged substantial changes in the meaning of the fourth part of Article 68 of the Satversme, the judgment of the Constitutional Court in Case No 2008-35-01 should have been a point of reference. However, the legal service of the Saeima provided an opinion and upheld the findings of the Independent Expert Council in that the second part of Article 68 of the Satversme should apply in the procedure of ratifying TSCG in the Saeima. The TSCG was ratified accordingly on 31 May 2012. On 21 February 2014, the EMU accession instrument was deposited, and Latvia became an EMU member with full rights and obligations on 13 March 2014. The introduction of EMU mechanisms in the Latvian legal system sparked a debate only with respect to the ratification procedures. The Constitutional Court has no right to initiate proceedings on its own initiative. The Constitutional Court proceedings are based upon the jurisdictio voluntaria principle.47 Thus, the Constitutional Court cannot review EMU mechanisms without a complaint being filed. A detailed regulation on the provisions of the Treaty is provided in the Fiscal Discipline Law.

D.  Fiscal Discipline Rules and Institutions Pursuant to the Letter of Intent of 9 May 2011 to the IMF and the Memorandum of Understanding concluded on 7 June between the EU and the Republic of Latvia, the cabinet and the Saeima drafted a law that would regulate the fiscal policy. The compliance with the agreed reforms was conditional for the successful completion of the International Loan Programme. The financial and economic crisis in Latvia and the analysis of its impact has shown very clearly that the implementation of a pro-cyclical fiscal policy in the years of fast economic growth facilitates the overheating of an economy. This makes the situation hard to control upon the onset of an economic recession. Therefore, future fiscal policy should be based on the principle of anti-cyclicality. To prevent the re-occurrence of a similar situation in the future and decrease the State’s vulnerability in cases of further possible global economic and financial crises, a legal regulation to ensure strict fiscal discipline in the long-term was needed.48

47 Anita Rodiņa and Alla Spale, ‘Constitutional Status of the Constitutional Court of the Republic of Latvia’ (2012) 4(58) Конституционное правосудие, available at www.satv.tiesa.gov.lv/en/articles/constitutional-status-of-theconstitutional-court-of-the-republic-of-latvia/. 48 Anders Åslund and Valdis Dombrovskis, How Latvia Came through the Financial Crisis (Massachusetts, Peterson Institute for International Economics: Special Report, 2011).

388  Dita Plepa With the previous regulation in the field of fiscal policy, Latvia was unable to ensure that the budget deficit would not exceed the reference value set in the EU Treaty. This led to the initiation of an Excessive Deficit Procedure against Latvia on 7 July 2009. The Fiscal Discipline Law was adopted on 31 January 2013. The purpose of this Law is to prescribe such fiscal policy principles and conditions that ensure a balanced budget in an economic cycle and, thus, facilitate sustainable national development, macroeconomic stability, and reduce the negative impact of external factors on the national economy. This Law contains legal norms arising from Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States. The following principles shall be observed in the implementation of fiscal policy: 1) economy principle – available resources shall be used usefully and efficiently; 2) accrual formation principle – if it is allowed by the economic situation, the budget shall be planned and implemented with a surplus which, in turn, allows it to cover future commitments in the case of a downturn in the economic situation or non-performance of the budget; 3) counter-cyclical fiscal policy principle – the fiscal policy which functions against tendencies of the economic cycle, namely, restrictive fiscal policy is implemented in a phase of economic cycle upturn, but in the downturn phase – stimulating fiscal policy; 4) stability principle – a financial policy is foreseeable and successive and, thus, it promotes economic development and financial stability; 5) sustainable fiscal policy principle – the objective of the fiscal policy is to ensure that the general government debt (within the meaning of Art  2 of Protocol 12 of the Treaty on the Functioning of the European Union) does not impose a disproportionate burden on the economy, but facilitates the development thereof in the long-term; 6) mutual liability principle of generations – in the fiscal policy, the financial impact on the society both, now and in the next generations, is taken into account; 7) transparency principle – information available to the public is ensured regarding fiscal policy objectives, achievement methods and results thereof; 8) solidarity principle – institutions included in the general government sector shall solidary comply with the fiscal rules laid down in this law and applicable to the general government sector.49

i.  National Fiscal Council The tasks of the Fiscal Council50 are to (1) supervise the compliance with the provisions defined in the Fiscal Discipline Law and the compliance of fiscal security reserve with the fiscal risks, (2) to prepare supervisory reports on fiscal discipline and, if necessary, an irregularity report, and (3) to inform the Saeima and the cabinet on its opinion on matters of fiscal policy and macroeconomic development. The Council has the responsibility to: 1) monitor the compliance with the Fiscal Discipline Law provisions in the budget framework law and the annual state budget law during their preparation, execution, and amendment; 49 Fiscal Discipline Law of 31 January 2013, Art 4. 50 The Fiscal Council is a collegial, functionally independent, fully-fledged and autonomous subject of the public law, the aim of its activities is abiding by the fiscal provisions set in the Fiscal Discipline Law. The Council started its operations on 1 January 2014.

Latvia  389 2) verify, if the fiscal balance and the expenditure growth provisions have been properly applied, including an independent assessment of the potential GDP and nominal GDP, and the calculation of the structural balance; 3) monitor the compliance with the Fiscal Discipline Law conditions with the estimated summary fiscal indicators during the execution of the annual state budget law, the consolidated local government budget, and derived public person budgets; 4) prepare opinions regarding the major departures from the balance condition permitted during a severe economic downturn; 5) prepare an opinion on the fiscal safety reserve to counter the prevailing fiscal risks for the state; 6) prepare a monitoring report for fiscal discipline and, if necessary, an irregularity report; 7) prepare and submit to the Saeima and the cabinet of ministers opinions regarding issues of fiscal policy and macroeconomic development, as necessary to ensure the compliance with the FDL; 8) endorse the Ministry of Finance macroeconomic forecasts twice a year – while preparing the Stability programme, and the annual state budget and while preparing the medium-term budget framework; 9) prepare an interim report (opinion) on the Stability programme; 10) prepare the reports stipulated by Fiscal Discipline Law to assess and analyse the fiscal policy sustainability of the country.51 The Fiscal Council consists of the following six members: 1) three representatives nominated according to the joint proposal of the Governor of the Bank of Latvia and Minister for Finance; 2) three representatives nominated by at least ten deputies of the Saeima.52 Specialists in the field of finances and economics from Latvia or the other EU Member States who are experienced in fiscal policy issues may be elected as members of the Fiscal Council. Members of the Council and shall be approved in the office by the Saeima for six years. A member of the Council may hold the office in the Council for not more than two terms of office in succession.53 The Fiscal Council draws up a fiscal discipline surveillance report before the submission of the draft framework law to the Saeima. The report is appended to the draft framework law and submitted to the Saeima. The report is also published on the website of the Ministry of Finance.54 If the Fiscal Council detects or becomes aware of infringements, it draws up a non-conformity report, which includes recommendations for the rectification of non-conformities. This report is prepared immediately after the detection of non-conformity. Then, it is submitted to the Cabinet and Saeima and published on the website of the Ministry of Finance.55 The Council develops and approves internal rules for the determination of the activities thereof. The internal rules provide the time and procedures for the convening of current meetings of the Council.56

51 Fiscal

Discipline Law of 31 January 2013, Art 28. Art 22(1). 53 Ibid, Art 23. 54 Ibid, Art 29(1). 55 Ibid, Art 29(2). 56 Ibid, Art 30. 52 Ibid,

390  Dita Plepa

ii.  Central Bank Latvijas Banka is the central bank of the Republic of Latvia and a member of the ESCB and the Eurosystem.57 Pursuant to the Law on Latvijas Banka, the primary goal of Latvijas Banka is to maintain price stability. Latvijas Banka is supervised by the Saeima. To ensure full compliance of the Law on the Bank of Latvia with the TFEU, and the ESCB and ECB Statutes, the Bank of Latvia introduced amendments to the Law on the Bank of Latvia, stipulating the integration of the Bank of Latvia into the Eurosystem. In addition, this draft law was submitted together with the Law on Introduction of Euro to the ECB for an opinion.58 Latvijas Banka has the following primary tasks: 1) participate in defining and implementing the Eurosystem’s monetary policy; 2) manage foreign reserves and other financial investments; 3) ensure currency circulation in Latvia and participate in ensuring the currency circulation in the eurozone; 4) participate in promoting the smooth functioning of payment systems; 5) compile and publish statistical information in order to ensure the performance of the tasks of Latvijas Banka; 6) cooperate with the ECB, the central banks of the other EU Member States and other countries, as well as other financial institutions; 7) act as the financial agent of Latvia’s government and provide financial services to other market participants; 8) act as an advisor to the Saeima and the cabinet of ministers of the Republic of Latvia on monetary policy issues and other issues related to the performance of the tasks of Latvijas Banka; 9) maintain the Credit Register; 10) issuing licences to legal persons listed in the Register of Enterprises of the Republic of Latvia, except credit institutions, for the purchase and sale of foreign currency as a commercial activity; 11) implement the functions of the National Analysis Centre and the Coin National Analysis Centre, ensuring efficient analysis of currency counterfeits.59 In its activities, Latvijas Banka complies with the Latvian and EU law, including ECB legal acts in accordance with the Treaty of Lisbon and the Statute of the European System of Central Banks and the European Central Bank. In 2017, Latvijas Banka participated in the joint Eurosystem oversight of payments and securities settlements organised by the Eurosystem, thus enhancing the development of efficient and secure payment systems in the EU. In the Rimsevics case and ECB/Latvia (C-202 and 238/18), the CJEU was called to rule on the grounds of Article 14.2 of the Statute of the European System of Central Banks. It empowers the governor of a national central bank, or the Governing Council of the ECB, to challenge before the CJEU the decision of a national authority to remove the governor from office if the removal has taken place disregarding the conditions established in the Treaties. When Mr Rimsevics, Governor of the Central Bank of Latvia, was provisionally suspended from office as a result of 57 Latvijas Banka is the representative of the Republic of Latvia in foreign central banks and international financial institutions. Latvijas Banka may participate in operations of other international financial and credit organisations consistent with its objectives and tasks, Law ‘On Latvijas Banka’ of 5 May 1992, Arts 1 and 2. 58 Order No 441 of the Cabinet of Ministers of 19 September 2012 ‘On the Latvia’s National Euro Changeover Plan’. 59 Law ‘On Latvijas Banka’ of 5 May 1992, Art 4.

Latvia  391 criminal investigations,60 Article 14.2 of the Statute was the provision to apply. This judgment is significant from the point of view of EU institutional law. It provides important insights into the interpretation of the Statute of the ESCB and the ECB and the provisions of the EU Treaties and marks new CJEU competences.61

III.  Constitutional Obstacles to EMU Integration The Constitutional Court has recognised that with the ratification of the Treaty on Latvia’s Accession to the European Union, EU law has become an integral part of Latvian law. Pursuant to this Treaty, legal acts adopted by EU institutions are also binding upon Latvia.62 Furthermore, the Constitutional Court defined the legislator’s obligations in implementing EU directives. The legislator is obliged to ensure that the requirements set out in directives are transposed precisely. That is, the legislator is obliged to transpose all commitments that follow from the norms of the particular directive into the national legal system and do that clearly and precisely so that individuals can understand their obligations and rights.63 The Constitutional Court has indicated that ‘provisions of Latvian law are to be interpreted in a way that removes conflicts with Latvia’s obligations towards the European Union, unless this touches upon the basic principles included in the Satversme’.64 The Constitutional Court used the opportunity to define the elements of fundamental constitutional values of constitutional identity to mark the perspective of preservation and development of national statehood.65 According to the Constitutional Court, [t]he State of Latvia is based on such fundamental values, which, among other things, include fundamental rights and fundamental liberties, democracy, sovereignty of the state and nation, separation of power and rule of law. The state has a duty to guarantee these values, and they may not be violated with amendments to the Constitution, which are introduced merely with a law.66

In the protection of these fundamental values, the Constitutional Court has defined the boundaries of integration of Latvia into a united Europe.67 Thus, as the EU integration develops, it is necessary to take into consideration the fact that the Satversme does not provide for an unlimited delegation of competencies, which would otherwise prevent Latvia from being considered a sovereign state.68 Thus, the Saeima has the responsibility to assess the compliance of EMU instruments with Articles 1 and 2 of the Satversme before adopting them. 60 On 19 February 2018, the Corruption Prevention and Combating Bureau or KNAB adopted several measures against Ilmārs Rimšēvičs, Governor of Latvijas Banka (the Central Bank of Latvia), including a prohibition on performing his duties, an obligation to pay a surety and prohibiting him from leaving the country without prior authorisation while a preliminary criminal investigation concerning acts of bribery and corruption continued. 61 Inga Reine, ‘Par EST spriedumu Ilmāra Rimšēviča lietā’ (2019) Jurista Vārds. 62 Judgment by the Constitutional Court of 7 June 2004 in Case No 2004-01-06, para 7 and Judgment of 17 January 2008 in Case No 2007-11-03, para 24.2. 63 Judgment by the Constitutional Court of 29 December 2014 in Case No 2014-06-03, para 21.2. 64 Judgment of the Constitutional Court of 17 January 2008 in the Case No 2007-11-03, para 25.4. 65 Jānis Pleps, Constitutional identity of the Baltic states. In book.: 25 years of renewed Latvia, Lithuania and Estonia: Experience of Baltic States in Europe, Materials of international conference (Rīga, Baltic Center for Strategic Studies, 2016) 12. 66 Judgment of 7 April 2009 by the Constitutional Court in Case No 2008-35-01, para 17, available at www.satv.tiesa.gov. lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2008/09/2008-35_01_ENG.pdf#search=. 67 Pleps, Constitutional identity of the Baltic states, In book.: 25 years of renewed Latvia, Lithuania and Estonia: Experience of Baltic States in Europe, 20. 68 Judgment of 7 April 2009 by the Constitutional Court in Case No.2008-35-01, para 18.3, available at www.satv.tiesa. gov.lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2008/09/2008-35_01_ENG.pdf#search=

392  Dita Plepa The Constitutional Court encountered the paradox of sovereignty69 in the Case No 2008-35-01.70 In this case, the Court examined whether the new EU competences to be introduced by the Treaty of Lisbon restricted the sovereignty of the people, which is encompassed and safeguarded by Article 2 of the Satversme. The Court found that it had not identified such provisions in the Treaty that would infringe upon the principle of the people’s sovereignty included and enshrined in Article 2 of the Satversme. The Court arrived at this conclusion because it had defined the relationship between the state and international commitments as follows: When analysing legal consequences that emerge when a state undertakes international liabilities, in international law sovereignty was evaluated as exercise of sovereign rights rather than restriction thereof. The right to undertake international liabilities is an element of State sovereignty.71

However, this does not change the fact that the constitutional courts are in the centre of the sovereignty paradox.72 This means that the Constitutional Court would still be entitled to assess issues related to the extent and limits of sovereignty. The task of the Constitutional Court, on the one hand, is to ensure full legal protection of the Satversme as the basic law of the state, but, on the other hand, it has the obligation, within the limits of its jurisdiction, to ensure that Latvia fulfils its international commitments as required in the Satversme. As to the content of the notion of ‘sovereignty’ included in Article 2 of the Satversme, it is necessary to assess at what moment the use of sovereignty for creation of international liabilities reaches a level where it is necessary to establish a constitutional procedure, in the national legal system, for the legitimisation of such use. At the same time, it is important to notice that the Constitutional Court has expressed its opinion for the test on the limits of transfer of competences in Case No 2008-35-01. Consequently, any changes to the membership in the EU, including EMU reforms, must be assessed in the context of Articles 1 and 2 of the Satversme, namely whether the changes aim at strengthening democracy and do not violate sovereignty. The Saeima carries out this assessment by ratifying the EMU instrument or treaty or the Constitutional Court if an application is submitted. The fourth part of Article 68 of the Satversme and the second part of Article 79 of the Satversme confers the right of the citizens to decide on issues regarding substantial changes in the terms of the membership of Latvia in the EU if requested by at least half of the MPs. Such wording ensures the possibility to determine the will of the people where the EU changes its constitutional structure to the extent that it may cause doubt whether the people of Latvia would continue to approve Latvia’s EU membership. At the same time, it is ensured that a national referendum would be held

Pleps, Constitutional identity of the Baltic states. In book.: 25 years of renewed Latvia, Lithuania and Estonia: Experience of Baltic States in Europe, 9. 69 Ineta Ziemele, ‘Constitutional Courts as Lock-Gates in the Globalised World’, paper presented at the international conference ‘The Role of the Constitutional Courts in the Globalised World of the 21st Century’ organised by the Constitutional Court of the Republic of Latvia in the framework of Latvia’s centenary in Riga on 24–25 May, available at www.satv.tiesa. gov.lv/en/articles/constitutional-courts-as-lock-gates-in-the-globalised-world/#_ftnref4. 70 The applicants hold that their right, guaranteed by Art 101 of the Satversme (right to participate in the work of the State), ie, to participate in a referendum on the Treaty of Lisbon Amending the Treaty of European Union and the Treaty Establishing the European Community has been infringed upon. The Constitutional Court passed a judgment and ruled that the Law on Ratifying the Lisbon Treaty had been adopted in the procedure established by the Satversme and, thus, was compatible with the first part of Art 101 of the Satversme. 71 Judgment of 7 April 2009 by the Constitutional Court in Case No 2008-35-01, para 14, available at www.satv.tiesa.gov. lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2008/09/2008-35_01_ENG.pdf#search=. 72 Ziemele, ‘Constitutional Courts as Lock-Gates in the Globalised World’.

Latvia  393 only regarding significant issues concerning EU integration (for instance, substantial changes in the EU Fundamental Treaties).73 The Constitutional Court concluded that the fourth part of Article  68 of the Satversme provides a necessary pre-condition for citizens to exercise their rights to participate in the decision-making process regarding the issues on amendments to the EU Treaty as requested by at least half of the members of the Saeima.74 Normally, the Saeima implements EMU instruments in the Latvian legal system using the procedure of Article  68 of the Satversme. Whether the MPs can adopt an objective decision regarding the ratification of any EMU treaty that delegates competencies to the EU depends greatly on a preliminary assessment of the respective treaty. After receiving the respective draft law, the Saeima is first obligated to assess under which procedure the law should be ratified, in accordance with the Satversme and relevant laws.75 The Latvian constitutional law doctrine holds that there is an unwritten core of the Satversme, which prescribes the constitutional identity of the State of Latvia.76 This doctrine is based on the opinion of the president of the Commission on Constitutional Law (Expert Commission)77 ‘On the Constitutional Foundations of the State of Latvia and the Inviolable Core of the Constitution’ of 17 September 2012. It concluded that an unwritten constitutional norm exists as a core of the Satversme. Substantively, this norm represents the totality of the elements that form the constitutional identity of the state of Latvia. Procedurally, the norm represents the protection (inviolability) of the constitutional identity of the State of Latvia. This concept of an unwritten core prohibits the constitutional legislator from introducing amendments to the Satversme that would violate the existing constitutional identity of the state of Latvia.78 The theory of the unwritten core of the Satversme, which prescribes the constitutional identity of the state of Latvia, may pose limitations to Latvia’s integration in the EU. The Commission on Constitutional Law has also proposed an extensive Preamble to the Satversme. The Preamble is meant to reflect the aims, principles of functioning of the state, and the essence of Latvia’s constitutional identity.79 A Preamble was eventually included in the Satversme in 2014. The draft of the Preamble was debated among academics as well as MPs. The main idea of the Preamble is to strengthen the nation-state idea of Latvia and the fundamentals of constitutional values.80 The text of the Preamble features an EU-friendly approach. In accordance

73 Judgment of 7 April 2009 by the Constitutional Court in Case No 2008-35-01, para 19.4, available at www.satv.tiesa. gov.lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2008/09/2008-35_01_ENG.pdf#search=. 74 Judgment of 7 April 2009 by the Constitutional Court in Case No 2008-35-01, para 19.4, available at www.satv.tiesa. gov.lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2008/09/2008-35_01_ENG.pdf#search=. 75 Judgment of 7 April 2009 by the Constitutional Court in Case No 2008-35-01, para 20, available at www.satv.tiesa.gov. lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2008/09/2008-35_01_ENG.pdf#search=. 76 Pleps, Constitutional identity of the Baltic states. In book.: 25 years of renewed Latvia, Lithuania and Estonia: Experience of Baltic States in Europe, 9. 77 On 7 December 2007, Latvian President Valdis Zatlers announced the establishment of President’s Commission on Constitutional Law. Recognised experts in the area of constitutional law are its members. The Commission was established with the purpose of offering support for the legislative functions that are assigned to the president in the Constitution, as well as of offering viewpoints vis-à-vis the interpretation and improvement of norms in the Constitution. The work of the Commission also relates to scientific research and qualified debate on important aspects of the law. Members of the Commission are independent in their work. They act in accordance with scientific criteria and legal methodology. As necessary, members of the Commission are permitted to bring in other specialists for research purposes. The views of the Commission on Constitutional Law have the status of recommendations. 78 Anita Rodiņa and Dita Amoliņa, ‘Developments of the Constitutional Law in the Republic of Latvia in 2012’. 79 Ibid. 80 Krūma and Plepa, Constitutional law in Latvia, 24.

394  Dita Plepa with the Preamble, Latvia protects its national interests and promotes sustainable and democratic development of a united Europe and the world. The Preamble allows further integration that would develop the EU as a strong union of states. The Satversme imposes constitutional obstacles to a set of comprehensive reforms to strengthen the EMU. Guidelines for the interpretation of the Satversme are included in the judgment of the Constitutional Court in Case No 2008-35-01. This judgment is the authoritative source of constitutional rules for Latvia’s further EU and EMU integration. It is important for Latvia that the deepening of the EMU leads to its sustainability and ensures opportunities for Latvia’s economic convergence with the eurozone average.81 Latvia will actively engage in a debate following a plan for discussions on the EU’s future endorsed by the European Council in October 2017. The most important issues on the EU’s future for Latvia that were discussed in 2018 were the post-2020 Multiannual Financial Framework and the deepening of the EMU. Latvia needs to continue working to ensure that the upcoming proposal for the EU’s post-2020 Multiannual Financial Framework would reflect a balance between the goals of internal EU development, convergence enshrined in the EU treaties, and support for the new challenges faced by the EU.82 When assessing proposals for the deepening of the EMU, Latvia focuses on principles such as stability of the eurozone, competitiveness and convergence among the Member States.83 Latvia supports, in general terms, the deepening and strengthening of the EMU to improve the competitiveness of the EU and the eurozone and their resilience against various economic challenges. Latvia’s position on the EMU reform proposals is built on five main points. First, Latvia modernised its budgetary processes in advance of its membership of the eurozone in 2014 and accession to the OECD in 2016, with a comprehensive range of reforms including fiscal rules, medium-term budgeting and an innovative approach to identifying and managing fiscal risk. On 1 January 2014 Latvia set up an independent collegial body established to monitor the compliance with the rules of the fiscal discipline.84 Second, Latvia conceptually supports the reform delivery tool proposed in COM(2017)826. However, according to Latvia, there is a risk that the Commission will have an impact on the Member States in the implementation of the national policies within their competence. Similarly, there is a risk that the Commission’s influence over a Member State’s policy could be unduly high, thereby undermining the ability of national legislatures to decide on the content of reforms. In that regard, the Constitutional Court in Case No 2008-35-01 concluded that all EU institutions also have to ensure continuous observance of the principles of subsidiarity and proportionality.85 Third, the current status of the ESM ensures its effective functioning and it can be developed into the EMF in the existing legal framework, with the corresponding changes to the treaty. However, it is not clear how the ESM would benefit from becoming an EU institution. Thus, Latvia’s preference is to preserve the ESM as an intergovernmental format ie, as an institution established by the eurozone Member States on a contractual basis. 81 Priorities of Latvia for the EU’s agenda in 2017, available at www.mfa.gov.lv/en/policy/european-union/latvia-spriorities-for-2017. 82 For instance, migration, internal and external security, and climate change. 83 European Union issues of priority for Latvia in 2018, available at www.mfa.gov.lv/en/policy/european-union/ latvia-s-priorities-for-2018. 84 European Commission, COM(2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States. 85 Judgment of 7 April 2009 by the Constitutional Court in Case No 2008-35-01, para 18.3, available at www.satv.tiesa. gov.lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2008/09/2008-35_01_ENG.pdf#search=.

Latvia  395 Fourth, Latvia considers that the idea of creating a new position such as a European Finance Minister is not a matter of priority. Thus, Latvia is prepared to discuss the details of the proposal if it can be shown that a eurozone finance minister could strengthen the EMU. If no such justification is provided, Latvia does not see a basis for enhancing the powers of the Commission.86 Fifth, the completion of the Banking Union, including a gradual establishment of a European Deposit Insurance Scheme, is Latvia’s priority. Latvia’s accession to the eurozone was a strategic, forward-looking, decision that fosters the prosperity and financial security of the Latvian people. The euro increases the protection of Latvia’s financial sector against various external turbulences and builds up trust in Latvia among businesses. Therefore, Latvia is and will remain interested in the enhancement of the EMU, especially in the formation of an effective Banking Union.87 Latvia also supports the measures for the establishment of a Capital Markets Union set out in the Commission’s Action Plan. For Latvia, it is vital that the Capital Markets Union bring benefits to all the EU Member States.88 The geopolitical interest of Latvia is to belong to an economically strong and politically stable EU. Thus, it is in Latvia’s interest that there are proposals to strengthen the EMU and improve the competitiveness and resilience of the eurozone to economic shocks. The various proposals for improving the EMU are being evaluated in Latvia against this general criterion.89

IV.  Constitutional Rules or Practice on Implementing EMU Related Law The Saeima consists of 100 MPs who are in charge of adopting laws and ratifying international and EU treaties. The Saeima may exercise its right to adopt, amend, or supplement laws and other regulatory enactments or recognise them as being invalid by complying with the procedure established by the Satversme and the principles included in the Satversme.90 In accordance with the Saeima Rules of Procedure, a draft law is examined in three readings, except for special cases, when a draft law is examined in two readings. The draft law on the state budget and draft laws that are recognised as being urgent, as well as draft laws on the ratification of international agreements (including EU treaties) are only examined in two readings. When transposing EU legislation into Latvian law, it is important to evaluate which EU legal norms are to be included in the laws and regulations of the cabinet of ministers. For instance, a law usually regulates issues that are relevant to the basic principles of a particular industry. In turn, issues that specify or define more precisely the basic principle of particular sector implementation mechanisms are included in regulations of the cabinet of ministers. EMU related law transposition methods are used to fully ensure the harmonisation of EU and national rights. The use of these methods is necessary in cases where EU law does not have direct applicability. That is, in cases where EU law is not in force in Latvia as part of domestic law, and its implementation requires specific national legislation. 86 EU issues of priority for Latvia in 2018, available at www.mfa.gov.lv/en/policy/european-union/latvia-spriorities-for-2018. 87 Annual Report of the Minister of Foreign Affairs on the accomplishments and further work with respect to national foreign policy and the EU 2018, available at www.mfa.gov.lv/images/ministrija/Annual_Report_of_the_ Minister_of_Foreign_Affairs_2018_en.pdf. 88 Latvia’s priorities for the EU agenda in 2019, available at www.mfa.gov.lv/en/brussels/priorities. 89 Latvia’s priorities for the EU agenda in 2019, available at www.mfa.gov.lv/en/brussels/priorities. 90 Krūma and Plepa, Constitutional law in Latvia.

396  Dita Plepa

V.  Resulting Relationship between EMU Related Law and National Law At statutory level, accession to the EMU also presented the Latvian legislator with the issue of how to ensure the proper functioning of the main EMU features in Latvia, such as the direct effect and preliminary rulings procedure. In the context of Latvia’s accession to the EU, this would mean that in principle there is no need for amendments to Latvian procedural laws because, since the ratification of the Accession Treaty, all acquis communautaire becomes part of the Latvian legal order.91 With the ratification of the Accession Treaty, EU law has become an integral part of Latvian law. According to this agreement, Latvia is also bound by the normative acts strengthening democracy adopted by the EU institutions. Accordingly, the legislator, when adopting legal norms, especially when transposing directives into the national legal system, must observe the general principles of law and other norms of the Satversme, as well as relevant EU law principles. The Constitutional Court has recognised that the fourth part of Article 68 and the second part of Article 79 of the Satversme confer the right to the people to decide on issues regarding substantial changes in terms of Latvia’s EU membership if at least a half of the members of the Saeima requested it. Such wording ensures the possibility to determine the will of the people when the EU changes its constitutional structure to the extent that the popular support in Latvia for continuous EU membership may be in doubt. At the same time, it is ensured that a national referendum would be held only regarding critical issues of EU integration (eg, substantial changes in the EU Fundamental Treaties). The present wording of these provisions does not allow for the submission of any issues to a national referendum (eg, acts adopted by EU institutions, like directives, regulations, etc).92 These Constitutional Court conclusions relate to the relationship between EMU related law and national law. The reason for reforms in Latvia has frequently been explained with reference to the external, namely EU and EMU, requirements that have facilitated the introduction of a broad and unified body of legislation in the country. However, the integration into the EU is an internal initiative and national interest of Latvia. The EU’s historical development shows that each country has to find its way towards the most effective usage of common rules. Latvia aims to solve the tasks of the EMU in a creative manner, actively seeking the most favourable solutions for the country and simultaneously being aware of the obligations towards the other states and the EU in general.93

References A Åslund and V Dombrovskis, How Latvia Came through the Financial Crisis (Massachusetts, Peterson Institute for International Economics: Special Report, 2011). European Commission, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States.

91 T Kerikmäe, K Joamets, J Pleps, A Rodiņa, T Berkmanas and E Gruodyte, The Law of the Baltic States, 174. 92 Judgment of 7 April 2009 by the Constitutional Court in Case No 2008-35-01, para 18.3, available at www.satv.tiesa. gov.lv/web/viewer.html?file=http://www.satv.tiesa.gov.lv/wp-content/uploads/2008/09/2008-35_01_ENG.pdf#search=. 93 Margita Markevica, ‘Latvia’s EU Integration Strategy into the 21st Century’ available at www.citeseerx.ist.psu.edu/ viewdoc/download?doi=10.1.1.385.5301&rep=rep1&type=pdf.

Latvia  397 T Kerikmäe, K Joamets, J Pleps, A Rodiņa, T Berkmanas and E Gruodyte, The Law of the Baltic States (Heidelberg, Springer, 2017), 174. Kristine Krūma and Dita Plepa, Constitutional law in Latvia (The Netherlands: Kluwer Law International, 2016). M Markevica, ‘Latvia’s EU Integration Strategy into the 21st Century available at www.citeseerx.ist.psu.edu/ viewdoc/download?doi=10.1.1.385.5301&rep=rep1&type=pdf. J Pleps, Constitutional identity of the Baltic states. In 25 years of renewed Latvia, Lithuania and Estonia: Experience of Baltic States in Europe, Materials of international conference (Rīga, Baltic Center for Strategic Studies, 2016). I Reine, ‘Par EST spriedumu Ilmāra Rimšēviča lietā‘ (2019) Jurista Vārds. Anita Rodiņa, ‘Constitutional Court and Protection of Fundamental Human Rights. Example of Latvia’ (2017) 43 Keizai Boeki Kenky. Anita Rodiņa and Dita Amoliņa, ‘Developments of the Constitutional Law in the Republic of Latvia in 2012’ (2013) 25(3) European Review of Public Law, 89. Anita Rodiņa and A Spale, ‘Constitutional Status of the Constitutional Court of the Republic of Latvia’ (2012) 4(58) Конституционное правосудие, available at www.satv.tiesa.gov.lv/en/articles/constitutiona l-status-of-the-constitutional-court-of-the-republic-of-latvia/. I Ziemele, ‘Constitutional Courts as Lock-Gates in the Globalised World’, paper presented at the international conference ‘The Role of the Constitutional Courts in the Globalised World of the 21st Century’ organised by the Constitutional Court of the Republic of Latvia in the framework of Latvia’s centenary in Riga on 24–25 May, available at www.satv.tiesa.gov.lv/en/articles/constitutional-courts-as-lock-gates-in-th e-globalised-world/#_ftnref4.

List of Relevant Legal Norms Satversme of 15 February 1922. Law ‘On Latvijas Banka’ of 5 May 1992. Constitutional Court Law of 5 June 1996. Fiscal Discipline Law of 31 January 2013.

Constitutional Court Case Law Judgment by the Constitutional Court of 7 June 2004 in Case No 2004-01-06. Judgment of 29 November 2007 by the Constitutional Court in Case No 2007-10-0102. Judgment of 7 April 2009 by the Constitutional Court in Case No 2008-35-01.

398

16 Lithuania IRMANTAS JARUKAITIS

Abstract: This chapter describes the structure and main principles of the Lithuanian Constitution of 1992, including the 2004 constitutional reform, which laid down the constitutional basis of Lithuania’s membership of the EU. It observes that due to their bitter historical struggle for statehood, Lithuanians have generally treated membership of the EU as a fundamental geopolitical choice. This point of view is reflected by the Constitution, which extensively opened the constitutional order to EU membership, while a separate constitutional act prohibits joining any union based on the former USSR. This could be one of the reasons of limited discussions both in academia and in the public discourse concerning various issues decided at the EU level, which later have had a profound impact upon implementation at the national level. The chapter provides an analysis of the constitutional reforms paving the way for Lithuania’s accession to the EMU, including an (unsuccessful) request to hold a referendum on the adoption of the euro on the ground that the nature of the EMU had been changed by the ESM Treaty, due to the extensive financial liabilities it might entail. Further, the legal and factual context in which the Fiscal Compact Treaty was ratified, as well as jurisprudence of the Constitutional Court of Lithuania, related to judicial review of macroeconomic policy formation and implementation measures, is explained. Finally, the chapter explores the constitutional limits for further fiscal, economic and monetary integration. It argues that further prospects of such integration depend very much on a deeper sense of mutual trust and solidarity of the EU citizens, which, in turn, is predetermined by the compliance with the EU regulatory framework and accountability of decision-making. From the point of view of the Lithuanian Constitution, the EU friendly jurisprudence of the Constitutional Court should prove open enough to embrace future changes at the EU level. Still, substantial limitations of the constitutional budgetary powers of the Lithuanian parliament, which are treated as a reflection of the principle of (national) democracy, may require constitutional amendments. Key words: Constitution of Lithuania, EU amendments of the Constitution, Lithuanian Constitutional Court, constitutional identity, geopolitics and security, referendum, adoption of the euro, ESM Treaty, fiscal compact, crisis management measures, further fiscal, economic and monetary integration, limits.

400  Irmantas Jarukaitis

I.  Main Characteristics and Constitutional Culture of Lithuania’s Constitutional System Lithuania’s current constitutional system is primarily based on the Constitution of the Republic of Lithuania (the Constitution), complemented by other specific constitutional acts.1 The Constitution was adopted on 25 October 1992 through a referendum. This was possible after Lithuania regained its independence on 11 March 1990 following 50 years of Soviet occupation. The restoration of independence of the Baltic states, including Lithuania, followed a long period of Soviet rule, which had been accompanied by terror and constant attempts to eradicate national identity.2 This fact explains the very strong sovereignist language of the text of the Constitution,3 which to some extent was softened by the later jurisprudence of the Constitutional Court of the Republic of Lithuania (CC). Nevertheless, the process of restoring Lithuanian independence, which led to the adoption of the Constitution, is just one, albeit very important, defining moment in modern Lithuanian constitutionalism. Historically, Lithuania stood at the forefront of modern constitutionalism. The origins of Lithuanian constitutionalism, as evidenced by the Preamble of the 1992 Constitution, may be traced back to the Middle Ages.4 That was one of the reasons why with the re-establishment of Lithuania’s independence on 11 March 1990, there was an aspiration to emphasise the continuity of the Lithuanian statehood and its constitutional tradition despite the Soviet occupation. The Constitution has a revolutionary character on account of being adopted after the collapse of a totalitarian regime. It is rigid and detailed. First and foremost it is a legal document and not a mere political declaration. It is based on some core constitutional principles, which ‘may not be negated’. These principles are the independence of the state, being a republic, democracy, the rule of law, separation of powers, and the innate nature of human rights.5 Importantly, unlike many

1 Some specific constitutional acts, like the Constitutional Law of the Republic of Lithuania on the State of Lithuania of 11 February 1991; the Constitutional Act on the Non-Alignment of the Republic of Lithuania to Post-Soviet Eastern Unions of 8 June 1992; the Constitutional Act of the Republic of Lithuania on Membership of the Republic of Lithuania in the European Union of 13 July 2004 are part of positivist constitutional law as well. See the English translation of the 1992 Constitution and other constitutional acts at www.lrs.lt/home/Konstitucija/Constitution.htm. 2 As one author put it, the long moral, political and legal challenge, that lasted for more than 50 years, ended in a great victory of international law: Romain Yakemtchouk, ‘Les Républiques Baltes En Droit International: Echec D’une Annexation Opéreé En Violation Du Droit Des Gens’, in Annuaire Français De Droit International XXXVI (Paris, CNRS, 1991), 259. For more details on the continuity of the Lithuanian state: Dainius Žalimas, ‘Legal Issues on the Continuity of the Republic of Lithuania’ (2001)1 Baltic Yearbook of International Law, 1. 3 The term ‘sovereignty/sovereign’ is mentioned seven times, and the term ‘independent/independence’ six times in the text of the Constitution. Art 1 of the Constitution speaks of Lithuania as first, an ‘independent’, and only then ‘democratic’ republic. This is not surprising, given the fact that at the time when the Constitution of 1992 was adopted the Russian army was still in the territory of Lithuania. 4 The Grand Duchy of Lithuania and, after the Lublin Union of 1569, the Polish-Lithuanian Commonwealth, did not know the idea of absolute power, because during the Middle Ages they never were absolute monarchies. The legal foundations of these polities were the Statutes (the First Statute was adopted in 1529, later replaced by the Second Statute of 1566 and then the Third Statute, adopted in 1588). The Statutes established legal principles, which later became inherent features of contemporary constitutionalism: the supremacy and direct application of the Statutes, origins of noblemen sovereignty and parliamentarism; the rule of law; a court as the institution of justice, including the principles of independence of judges and requirements for their impeccable reputation, etc. The Constitution of the Lithuanian-Polish Commonwealth was adopted on 3 May 1791 and amended by the Mutual Pledge of the Two Nations of 20 October 1791. However, due to historic circumstances (the Third partition of the Commonwealth), the Constitution was renounced two years later. See the text of the Constitution with related acts and comments in Polish, Lithuanian and English: Juliusz Bardach, Konstytucja 3 Maja 1791. 1791 gegužės 3-osios Konstitucija. The Constitution of May 3, 1791 (Warszawa, Wydaw Sejmowe, 2001). After the establishment of an independent Lithuania on 16 February 1918, the Republic experienced a short period with its own constitutional tradition until occupation by the Soviet Union in 1940. 5 Rulings of the CC of 24 January 2014; 12 November 2015. For English translations of the Constitutional Court rulings see www.lrkt.lt/en/court-acts/rulings-conclusions-decisions/171/y2018.

Lithuania  401 other European constitutions, the Constitution explicitly establishes the systemic principle of market economy and freedom of individual economic activity.6 Furthermore, although the text of the Constitution is silent on the matter of the social nature of the state and the social orientation of the Constitution, these aspects were developed by the CC over time.7 The Constitution explicitly pronounces its supremacy over other sources of law (Article 7)8 and its direct applicability (Article 6).9 The jurisprudence of the CC and academic writings reflect the classic understanding of the Constitution: the Lithuanian people (the nation) are the source of power in the Constitution, which is the supreme law of the land. The Constitution reflects a social contract – an imperative vision, a democratically accepted obligation by all Lithuanian citizens for current and future generations to live according to the fundamental rules entrenched in the Constitution and to obey them in order to ensure the legitimacy of the governing power, the legitimacy of its decisions, as well as to ensure human rights and freedoms, so that harmony exists in society. The CC makes it clear that the Constitution is based on universal, unquestionable values. These values are sovereignty belonging to the nation, democracy, the recognition of and respect for human rights and freedoms, respect for the law and the rule of law, limitation of the scope of powers, the duty of state institutions to serve the people and their responsibility to society, public spirit, justice, and striving for an open, just and harmonious civil society and state under the rule of law.10 The Constitution establishes a rigid amendment procedure. It envisages different procedures and requirements, thus establishing a certain de facto internal hierarchy of its provisions. These procedures require wide support both among the public in general and among the political parties represented in the parliament (Seimas), ensuring that the constitutional amendment procedure is above the ordinary political process.11 The rigidity of these provisions explains why amendments 6 Art 46 of the Constitution. The CC treats provisions of Art 46 of the Constitution both as systemic constitutional principle and as subjective/individual constitutional freedom, enforceable by courts: for example, see the Ruling of the CC of 26 January 2004. For more detailed account see Irmantas Jarukaitis, ‘Europos Sąjungos ekonominė Konstitucija kaip papildoma Lietuvos Respublikos Konstitucijos dimensija: tyrimų kontūrai (‘The European Union Economic Constitution as the Additional Dimension of the Constitution of the Republic of Lithuania: Contours of the Research’) (2014) 2(84) Teisės problemos, 26–99. 7 For example, see the CC ruling of 12 March 1997. Still, Lithuanian authors are quite unanimous in stating that such jurisprudence of the CC does not mean recognition of the principle of a social state, since that principle is, first of all, ‘the principle of a rich state: Egidijus Kūris, ‘Koordinaciniai ir determinaciniai konstituciniai principai (II)’ (2002) 27(19) Jurisprudencija, 59. 8 Although the jurisprudence of the CC reveals a friendly approach towards both the European Convention on Human Rights (the ECHR) and EU law (for more details see, for example, Irmantas Jarukaitis, ‘Report on Estonia, Latvia and Lithuania’ in G Martinico, O Pollicino (eds), National Judges and Supranational Laws: on the Effective Application of the EC Law and the ECHR (Groningen, Europa Law Publishing, 2010), 167, there is no doubt that the CC places the Constitution at the apex of the national legal system: once the Grand Chamber of the European Court of Human Rights (the ECtHR) delivered its judgment of 6 January 2011 in Paksas v Lithuania (App No 34932/04) stating that the interpretation of the Constitution, provided by the CC as regards the consequences of the impeachment, is not fully in line with the ECHR, the CC ruled that the judgment of the ECtHR may not have an impact on the content of the Constitution or be a ground to reinterpret it, and the only way to remove the inconsistency between the ECHR and the Constitution is to adopt appropriate constitutional amendments: ruling of the CC of 5 September 2012. 9 Art 6 is supplemented by Art 30, stating that a person whose constitutional rights or freedoms are violated shall have the right to apply to a court. The CC treats this provision as absolute: the legislator may not adopt the regulation negating the right to defend his constitutional rights and freedoms in a court (ruling of the CC of 30 June 2000). 10 Rulings of the CC of 25 May 2004; 19 August 2006; 24 September 2009; 24 January 2014; Decisions of 20 April 2010; 19 December 2012. 11 According to Art 148(1), ‘the provision of Article 1 of the Constitution “the State of Lithuania shall be an independent democratic republic” may only be altered by referendum if not less than three-quarters of the citizens of Lithuania with the electoral right vote in favour thereof ’. The provisions of the First and the Fourteenth Chapters (‘The Alteration of the Constitution’) may be amended only by referendum. Other provisions of the Constitution may be adopted by the parliament: these must be considered and voted at the parliament twice with a break of not less than three months between the votes. A draft law amending the Constitution is to be deemed adopted if, during each of the votes, not less than two-thirds of all the members of the

402  Irmantas Jarukaitis of the Constitution are rather rare.12 It also secures the paramount place of the CC as regards the further development of the Constitution and, among the other things, predetermines its jurisprudence on the constitutionality of constitutional amendments.13 The Constitution establishes the unitary democratic state, the parliamentary republic14 with a ‘presidential’ flavour.15 The Constitution emphasises the central role played by parliament in the system of national political institutions. Parliament is treated as the bearer of the people’s sovereignty, the only representative of the nation, and the centre and consolidator of the national political system.16 In particular, Article 5 of the Constitution, as interpreted by the CC, establishes a strict separation of powers as regards legislative and executive powers. Thus, no delegation of legislative powers to the government is allowed.17 This was one of the reasons why EU-related constitutional amendments were necessary. When it comes to the judicial system, the Constitution envisages the establishment of the CC (Articles 102–08), the general competence court system (Articles 109–17), as well as the possibility of the establishment of specialised courts (Article 111 para 2). Although there were some ideas to establish a CC during the interwar period, they did not materialise, and the 1992 Constitution is the first in the Lithuanian constitutional tradition to envisage a CC. The CC de facto started functioning in 1993 and in practice became a very strong player, both in terms of the protection of fundamental rights and as an arbitrator in disputes between different branches of public (political) power.18 This role is secured, among other things,

parliament vote in favour. A failed amendment of the Constitution may be submitted to the parliament for reconsideration not earlier than after one year. 12 To date, the Constitution has been amended nine times; five amendments were related to membership in the EU. 13 Rulings of the CC of 24 January 2014 and 11 July 2014. The CC pointed out that when adopting amendments of the Constitution, both procedural and material safeguards, stemming from the nature and purpose of the Constitution, have to be respected. Failure to respect those safeguards may result in declaration of unconstitutionality of relevant constitutional amendments. The procedural safeguards are established in Ch XIV of the Constitution. The material safeguards, at least the values, established by Art 1 of the Constitution (the independence of the state, democracy and innate nature of human rights) are treated as ‘eternal’ and may not be annulled by the constitutional amendments. Thus, according to the CC, the Constitution does not establish preconditions for a ‘democratic suicide’. 14 Non-exhaustive list of powers of the Seimas is provided in Art 67 of the Constitution. It includes adoption of amendments of the Constitution, laws and the budget, approval of the prime minister, upon proposal by the president of the republic, approval of the programme of the government, ratification of international treaties, introduction of taxes, declaration of martial law, etc. 15 The president of the republic is elected by way of direct elections. He/she proposes the prime minister to the parliament and, upon its assent, appoints the prime minister, charges him with formation of the government, approves the composition of the government. Still, after elections of the new president, differently from the elections of the parliament, the ‘old’ government does not have to resign and may continue its activities under the program approved by the parliament. 16 The CC resorts to different rhetoric when it comes to description of the Seimas and the European Parliament. It emphasises that under the Constitution only the Seimas is the representation of the nation (Tautos atstovybė), through which the nation executes its supreme sovereign power. According to the CC, the constitutional nature of the Seimas as the representative of the nation determines its special place within the system of institutions of state power, as well as its functions and powers. When exercising its constitutional powers, the Seimas performs classical functions of a parliament of a democratic state under the rule of law: see the rulings of the CC of 25 May 2004 and 1 July 2004. Although not expressing any doubts about the democratic legitimacy of the European Parliament the CC describes it in rather neutral technocratic language, laconically pointing out that ‘the European Parliament represents citizens of the European Union and is to be regarded as a representative political institution’, and making clear that ‘the European Parliament is not the representation of the Nation’. Still such perception does not preclude the application of the electoral rights, established in Article 34 para 2 of the Constitution, to elections of the European Parliament: see the ruling of the CC of 9 November 2010. 17 Rulings of the CC of 14 January 2002; 13 December 2004. Because of that, Lithuania’s accession to the EU had the profound impact on the principle of separation of powers (and the principle of democracy as well), since through participation in the Council the government de jure and de facto acquired legislative rights (see section II.A). 18 According to Art. 105–06 of the Constitution the CC performs both the abstract review of legality of the acts of the parliament, the government and the president of the republic upon application of the highest political institutions and the

Lithuania  403 by the rigid constitutional amendments procedure, creating preconditions to transform the Constitution into a jurisprudential, living constitution. This means that the Constitution as the potential became a real legal order, allowing the protection of constitutional rights and freedoms, the equilibrium between public institutions in a constantly changing reality.19 Over time, the CC evolved from a restrained, negative compliance-checker to an institution which positively proposes to the legislator optimal legislative choices.20 The Constitution is also a very important legal tool for the performance of the judicial functions of courts of general competence21 and administrative courts22 of Lithuania. These courts are very active in questioning the legality of acts of the parliament and of the government and are referring cases to the CC. By doing so, they contribute to the establishment of a de facto decentralised system of constitutional review, although, of course, de jure and de facto the CC has the sole responsibility for scrutinising the constitutionality of acts of the parliament, the president and of the government.

II.  The Constitutional Foundations of EU and EMU Membership and its Limits A.  Constitutional Basis of Lithuania’s Membership of the EU Discussions concerning the necessity, form and content of the constitutional reform in the context of Lithuania’s EU membership started just before the entry into force of the Association Agreement and lasted for more than six years.23 Finally, in order to secure a proper constitutional concrete review of these acts upon application of courts, dealing with particular cases. Besides, it performs some other functions, for example, gives ex ante conclusions on compatibility of international agreements vis-à-vis the Constitution or conclusions, whether the actions of MPs or other state officials against whom an impeachment procedure has been initiated are in breach of the Constitution. 19 For example, Egidijus Jarašiūnas, ‘Jurisprudencinė konstitucija (2006) 12(90) Jurisprudencija, 32. 20 Egidijus Šileikis, ‘Aktyvistinė konstitucinė justicija kaip subtili diskrecija inspiruoti teisinius modelius’ (2006) 12 (90) Jurisprudencija, 51. However, this comes at price, since various judgments of the CC, especially annulling certain measures, adopted during the last economic crisis (see further), have sparked big criticisms with suggestions ranging from limitation of powers of the CC in the field of economic matters to suggestions about dismantlement of the Court. So far, these suggestions have never materialised in concrete drafts of constitutional amendments. Still, dissatisfaction with active stance of the CC may be one of the reasons, why Lithuania is among few European countries, which do not have the institute of individual constitutional complaint. Discussions on this issue last for more than 10 years and at least in the legal (academic) community there is a prevailing consensus that such constitutional reform is necessary. Although the parliament has approved the conception of the institute of individual constitutional complaint back in 2007, relevant constitutional amendments, introduced before the parliament in 2017 did not receive sufficient number of votes and were not adopted. Finally, these amendments were tabled before the parliament again in 2018 and, at the time of writing of the contribution, were approved during the first vote. 21 The courts of general competence (four-level system) deal with civil (commercial, family, labour) cases and cases of criminal and administrative offences. Judgments of lower general competence courts may be appealed to a higher general competence court (depending on the nature of the case – the regional court or the Court of Appeal) up to the Supreme Court of Lithuania, which is a court of cassation. 22 The system of administrative courts, established in 1999, is composed of two levels: two regional administrative courts and the Supreme Administrative Court of Lithuania (SACL), which acts as a court of appeal against the judgments of the regional administrative courts. The system of administrative courts was established in the course of EU accession negotiations, it was seen as additional guarantee of the rule of law. Administrative courts hear, among other cases, individual administrative disputes as regards the legality of individual administrative acts or inaction. Besides, the SACL acts as a ‘small constitutional court’ and performs the review of legality of normative acts of public institutions, save those checked by the CC. 23 For more details see: Irmantas Jarukaitis, Gintaras Švedas, ‘The Constitutional Experience of Lithuania in the Context of European and Global Governance Challenges’ in A Albi, S Borducki (eds), National Constitutions in European and Global Governance: Democracy, Rights, the Rule of Law (Oxford, Oxford University Press, 2019).

404  Irmantas Jarukaitis basis for Lithuania’s membership within the EU, the parliament adopted the Law Supplementing the Constitution with the Constitutional Act on Membership of the Republic of Lithuania in the European Union and Supplementing Article 150 of the Constitution on 13 July 2004.24 The amendments took effect as of 14 August 2004. The Constitutional Act is an integral part of the Constitution. Amendments of the Constitution were preceded by a compulsory referendum. According to Article 9 of the Constitution, the most significant issues concerning the life of the state and the nation shall be decided by referendum.25 Given the profound impact of Lithuania’s accession to the EU on the whole of Lithuanian society, the state and the core constitutional principles of the national polity, it was decided to organise a referendum on EU accession once the Accession Treaty was signed. The referendum took place on 10–11 May 2003. A simple statement, ‘I am for Lithuania’s membership in the European Union’, was submitted to a vote. Of the Lithuanian citizens who were entitled to vote, 63.37 per cent participated in the referendum. A notably high fraction (90 per cent) voted in favour of Lithuania’s accession to the EU. As may be seen from provisions of the Constitutional Act, Lithuania’s accession to the EU is based on several premises. First of all, the Preamble of the Constitutional Act notes the systemic compatibility of the core constitutional values on which both Lithuania and the EU are based. Second, respect of national identities of the Member States is specifically highlighted. Finally, the Constitutional Act was adopted in the belief that membership within the EU would create better preconditions to realise the ideals established by the Constitution.



24 The

Constitutional Act on Membership of the Republic of Lithuania in the European Union provides:

‘The Seimas of the Republic of Lithuania, executing the will of the citizens of the Republic of Lithuania expressed in the referendum on the membership of the Republic of Lithuania in the European Union, held on 10-11 May 2003; expressing its conviction that the European Union respects human rights and fundamental freedoms and that the Lithuanian membership in the European Union will contribute to a more efficient securing of human rights and freedoms, noting that the European Union respects the national identity and constitutional traditions of its Member States, seeking to ensure a fully-fledged participation of the Republic of Lithuania in European integration as well as the security of the Republic of Lithuania and welfare of its citizens … adopts and proclaims this Constitutional Act: 1. The Republic of Lithuania as a Member State of the European Union shall share with or confer on the European Union the competences of its State institutions in the areas provided for in the founding Treaties of the European Union and to the extent it would, together with the other Member States of the European Union, jointly meet its membership commitments in those areas as well as enjoy membership rights. 2. The norms of European Union law shall be a constituent part of the legal system of the Republic of Lithuania. Where it concerns the founding Treaties of the European Union, the norms of European Union law shall be applied directly, while in the event of a collision of legal norms, they shall have supremacy over the laws and other legal acts of the Republic of Lithuania. 3. The Government shall inform the Seimas of proposals to adopt acts of European Union law. As regards proposals to adopt acts of European Union law regulating areas which, under the Constitution of the Republic of Lithuania, are related to the competences of the Seimas, the Government shall consult the Seimas. The Seimas may recommend a position of the Republic of Lithuania in respect of these proposals to the Government. The Seimas Committee on European Affairs and the Seimas Committee on Foreign Affairs may, according to the procedure established by the Statute of the Seimas, submit to the Government the opinion of the Seimas concerning proposals to adopt acts of the European Union law. The Government shall assess the recommendations or opinions submitted by the Seimas or its Committees and shall inform the Seimas about their execution following the procedure established by legal acts. 4. The Government shall consider proposals to adopt acts of European Union law following the procedure established by legal acts. As regards these proposals, the Government may adopt decisions or resolutions for the adoption of which the provisions of Article 95 of the Constitution are not applicable.’ (Some revisions have been made to the English translation, available at www3.lrs.lt/home/Konstitucija/Constitution.htm.) 25 Art 4 para 5 of the Law on Referendums provides for a mandatory referendum concerning the participation of the Republic of Lithuania in international organisations ‘should this participation be linked with the partial transfer of the scope of competence of Government bodies to the institutions of international organizations or the jurisdiction thereof ’.

Lithuania  405 These premises are translated into the main body of the Constitutional Act. It is evident that its provisions simultaneously perform integrative and defensive functions. On the one hand, Article 1 of the Constitutional Act establishes a clear constitutional basis for a transfer of part of the competences of state institutions to supranational ones. In essence, this is the exception to the general rule, established in Article  5 of the Constitution, providing that the exercise of public powers in Lithuania is reserved only for Lithuanian institutions. Thus, Article  1 of the Constitutional Act opened the national constitutional order and, alongside the horizontal division of powers, legitimated the vertical distribution of powers, allowing the exercise of powers by EU institutions in the territory of Lithuania. Nevertheless, Article  1 of the Constitutional Act has several built-in defensive elements detailing the nature of such transfer of public powers to the EU. First of all, it refers to Lithuania as a ‘Member state’. As regards the transfer itself, it speaks about ‘sharing or entrusting of competences’ and by doing so emphasises several aspects. On the one hand, the clause embeds the principle of conferral on which the EU is based at the national constitutional level. The term ‘entrusts’ (patiki, in Lithuanian) is to some extent a synonym of the term ‘confers’, but it is more subtle, since it demonstrates that such conferral is not irreversible and the ultimate source of authority rests at the national level.26 Thus, the object of such sharing and entrusting is not sovereignty per se or even ‘sovereign powers’, but only ‘the competences of its State institutions’.27 From that perspective, it seems, that the principle of sovereignty, which serves as a basis for Lithuania’s membership within the EU (it could became an EU Member State only because it is a sovereign state from the point of view of public international law), also serves as a conceptual limit to further EU integration: from the point of view of the Constitution, without amendments to Article 1 of the Constitution, it would be impossible to accept claims on the part of the EU not ‘only’ to autonomy, which is reflected by Article 1 of the Constitutional Act, but also to statehood. In the same vain, the provisions of the Preamble of the Constitutional Act may be seen as material limits to the exercise of public power at the EU level. EU law is incorporated into the Lithuanian legal system by Article 2 of the Constitutional Act. There were some discussions as to whether such provisions are needed at all, since specific principles of EU law, developed by the Court of Justice of the European Union, are part of EU law. Such form of incorporation means, inter alia, the recognition of the sui generis nature of EU law.28 Adoption of Article 2 of the Constitutional Act means that the basis for the application of EU law rests, foremost, within the Constitution itself, at least from the point of view of the Constitution. This means that by adopting the Constitutional Act, the parliament constitutionalised the principles developed by the CJEU, ie granted these principles special, constitutional treatment, but on the other hand, it rejected the idea that these principles stem from the nature of EU law itself, without the ‘mediation’ of the Constitution. Consequently, the adopted Constitutional Act transforms the application of EU law and its specific features into a matter of national constitutional law, basically stating that the criteria of validity of law, applicable in the territory of Lithuania, remain embedded in the Constitution. It means that the Constitution 26 On the other hand, the Preamble of the Constitutional Act (rec 4) expressly recognises the necessity of membership in the EU, since it establishes a connection between the security and welfare of citizens and participation in the EU. 27 See as well: Egidijus Šileikis, Alternatyvi konstitucinė teisė (Vilnius, Teisinės Informacijos Centras, 2005); Irmantas Jarukaitis, ‘Adoption of the Third Constitutional Act and its Impact on the National Constitutional System’ (2006) 60 Teisė/Mokslo darbai, 22; Vaidotas A Vaičaitis, ‘The Republic of Lithuania in C Kortmann, J Fleuren, W Voermans (eds) Constitutional Law of 10 EU Member States: The 2004 Enlargement (Deventer, Kluwer, 2006). 28 This is so because Art 138 para 3 of the Constitution incorporates ratified international treaties into the Lithuanian legal order and adopts a monist approach with regard to public international law. Consequently, if EU law were to be treated as part of public international law, the provisions of Art 2 of the Constitutional Act would be redundant.

406  Irmantas Jarukaitis instead of EU law by its very nature forms the basis for the application of EU law in Lithuania. This leads to some important consequences: EU law becomes part of the national legal system; all state institutions (national courts, other state institutions) have a duty to apply EU law and to interpret national law ‘in the light’ of EU law as a matter of Lithuanian constitutional law as well;29 national courts have a constitutional right and duty to use the preliminary ruling procedure. At the same time, these provisions perform a defensive function, since their mere existence rejects the idea of the absolute autonomy of EU law as developed by the CJEU. Moreover, the CC makes it clear that the principle of primacy of EU law does not extend unconditionally over the Constitution. To sum up, it is widely recognised in academic writings that Lithuania’s accession to the EU and the Constitutional Act had a profound, systemic impact on the whole content of the Constitution. The system of the exercise of public powers, programmed by the Constitution, was reorganised and a new, vertical dimension was added. Given this fact and the mode of decision-making at the EU level, the impact of EU membership on the principle of democracy,30 the principle of separation of powers,31 the principle of rule of law (or rather, redistribution of powers of national courts)32 was really profound. Because of this profound impact, some Lithuanian constitutional thinkers even speak about the necessity of adopting a new methodological approach to the interpretation of the Constitution.33 As regards the attitude of the CC to EU-related issues, the CC, on the one hand, does not accept the idea of unlimited primacy of EU law over the Constitution.34 However, the CC accepts the impact of EU law on the interpretation of the Constitution,35 recognises the necessity of

29 The CC so far has not explicitly stated that the national courts have a constitutional duty to apply EU law; however, such duty can be clearly deduced from its recent ruling of 24 January 2014. The Supreme Court of Lithuania has taken this approach in its Decision of 7 January 2008 in Case No 3K-3-91/2008, and the Supreme Administrative Court of Lithuania in Decision of 28 May 2007 in Case No A6-238/2007 and Decision of 1 October 2010 in Case No A858-1204/2010. 30 This development has two dimensions. On the one hand, by becoming an EU Member state, Lithuania became part of the bigger political community and the boundaries of democracy have expanded, ie Lithuanian citizens started their participation in the EU-wide democratic system as EU citizens. On the other hand, by accepting the competence of EU institutions and qualified majority voting in the Council, Lithuania accepted to be bound by decisions adopted without its assent. 31 As mentioned above, the government acquired the legislative powers through participation in the EU Council. In order to soften such modification of the principle of separation of powers (and the principle of democracy) Art 3 of the Constitutional Act was inserted. It obliges the government to consult the Seimas in EU matters. These provisions are further detailed by the Statute of the Seimas. 32 Before accession to the EU, Lithuanian administrative courts and courts of general competence had no powers to refuse to apply provisions of the law of the parliament in case of its contravention to ratified international treaties – only the CC could rule on such incompatibility. After the accession, due to Simmenthal II jurisprudence, administrative courts and courts of general competence may themselves disapply provisions of national law which are contrary to EU primary (and secondary) law. 33 For example, Irmantas Jarukaitis, Lietuvos Respublikos narystės Lietuvos Respublikoje konstituciniai pagrindai (Vilnius, Justitia, 2011); Egidijus Šileikis, ‘The Influence of Lithuanian membership in the European Union and the Interpretation of the Lithuanian Constitution in H Šinkūnas, J Bernatonis, G Švedas, Faculty of law, Vilnius University/1 et al (eds), Lithuanian Legal System Under the Influence of European Union Law (Vilnius, Vilnius University, 2014), 55. 34 Ruling of the CC 14 March 2004. Lithuanian commentators support such approach: Egidijus Kūris, ‘Lietuvos Respublikos Konstitucija ir Europos teisės iššūkiai (2004) 6 Justitia, 34; Šileikis, Alternatyvi konstitucinė teisė; Arminas Abramavičius, ‘Narystė Europos Sąjungoje ir Lietuvos Respublikos Konstitucinio Teismo įgaliojimai (2006) Konstitucinė jurisprudencija. Lietuvos Respublikos Konstitucinio Teismo biuletenis, 311; Irmantas Jarukaitis, ‘Lithuania‘s Membership in the European Union and Application of EU law at National Level in A Lazowski (ed) The Application of EU Law in the New Member States: Brave New World (The Hague, TMC Asser Press, 2010), 209. 35 For example, the ruling of the CC of 21 December 2006. References to various sources of EU law may be found in 53 rulings and decisions of the CC, delivered in 2004–17. The intensity of their impact on the interpretation of the Constitution differs starting from mere illustration of certain regulation to rulings, where the content of EU law basically predetermines the outcome of the case.

Lithuania  407 reinterpretation of the Constitution, prompted by accession to the EU and the adoption of the Constitutional Act.36 Such acceptance of the impact of EU law on the Constitution includes preliminary references to the CJEU.37 Even more, in its recent practice, the CC consolidated its methodological approach to the EU membership. It treats Lithuania’s fully fledged EU membership as a constitutional value, acknowledges that the Constitution establishes a constitutional imperative for Lithuania’s participation in the EU and treats the Constitutional Act as the expression of a positive geopolitical orientation of Lithuania, thus strengthening the stability and protection of the Constitution. Such positive geopolitical orientation is based on the structural compatibility of universal values, on which Western civilization is based, as well as on the belief that EU membership is closely related to core Lithuanian constitutional values – independence of the state, democracy and republic.38 This approach means that no constitutional amendments, negating Lithuania’s commitments stemming from the EU membership, may be made, unless the constitutional basis of Lithuania’s membership within the EU is renounced by way of popular referendum.39 Finally, the CC never claimed the power to judge on the validity and/or application of EU legal acts in Lithuania. Authors largely agree that the CC does not have such powers. Thus, so far, the attitude of the CC towards EU integration is truly positive. With regard to the jurisprudence of administrative courts and courts of general competence, after 14 years of membership, EU law is firmly entrenched in domestic courts’ practice. In particular, the principles of primacy and direct effect of EU law are recognised and applied by Lithuanian courts.40

B.  Constitutional Basis of Lithuania’s Participation in the EMU The question of Lithuania’s membership in the Economic and Monetary Union (EMU) was part of the accession negotiations and it accepted to be an EMU member in the Accession Treaty.41 Therefore, Lithuania’s membership in the EMU received no special/additional constitutional treatment, because the obligation to accede to the EMU (once Lithuania satisfies the Maastricht criteria) was established in the Accession Treaty, and the above-mentioned Article  1 of the Constitutional Act embraced the trust of national powers in the EMU field as well. Nevertheless, in the wake of preparations to the membership in the EMU, Article  125 of the Constitution was amended in 2006 by the parliament, because it was seen as being incompatible with EU law. Before the amendment, Article  125 provided for the Bank of Lithuania’s

36 For example, the ruling of the CC of 26 September 2006. 37 Up to date the CC referred to the CJEU twice: see Decisions of the CC of 8 May 2007 and 22 December 2017. In both cases the CC posed questions concerning the interpretation of secondary EU legal acts. Whereas the first reference is characterised by strong language about the supremacy of the Constitution, the second is silent on this aspect. 38 Here, one may note a certain paradox. On the one hand, Lithuania’s membership of the EU entailed the unprecedented transfer of public powers to the supranational level. On the other hand, given the bitter historic experience of the Lithuanian nation, such a membership creates better preconditions to develop its statehood and constitutional ideals than it had for more than 200 years. 39 See the rulings of the CC of 24 January 2014 and of 12 November 2015. It should be noted as well as in these rulings, the CC omitted references to the supremacy of the Constitution, emphasised in the ruling of 14 March 2006. 40 For more details see: Jarukaitis, ‘Report on Estonia, Latvia and Lithuania’. The CJEU had received 55 references from Lithuanian courts as of the end of 2017. Of those, 21 were submitted by the Supreme Administrative Court, 18 by the Supreme Court of Lithuania, one from the CC (the second reference not included in the statistics) and 15 from other courts: see the Annual Report of Judicial Activity for 2017 of the Court of Justice of the European Union, 125: www.curia. europa.eu/jcms/upload/docs/application/pdf/2018-04/_ra_2017_en.pdf. 41 See Art. 2 and 4 of the Accession Act in particular.

408  Irmantas Jarukaitis ‘exclusive right to issue bank notes’, which was not in line with the rights of the European Central Bank.42 The Law amending Article 125 para 2 of the Constitution was adopted on 25 April 2006, and it simply abolished that paragraph. Lithuania had plans to introduce the euro in 2007 but its first attempt failed.43 Eventually, it joined the eurozone after the peak of the economic crisis, on 1 January 2015. Interestingly enough, although the constitutional foundations of the EMU membership were laid down without much opposition, the accession to the EMU was preceded by some legal battles. First, a group of members of parliament questioned the constitutionality of the 2006 amendment of Article  125 of the Constitution.44 On the one hand, the CC agreed with the arguments of the applicants and declared that the Law on amendment of Article  125 of the Constitution was adopted in breach of the essential procedural requirements of Article 147 of the Constitution, and annulled the law.45 However, the Court pointed out in the ruling that the Constitution establishes a constitutional principle of positive geopolitical orientation (that is, the membership in the EU and NATO). The Preamble to the Constitutional Act expressly speaks about the ‘fully fledged participation of the Republic of Lithuania in the European integration’, thus, namely the full membership of Lithuania in the EU is a constitutional value. Further, the Constitution establishes the obligation to respect undertaken international commitments (in this case, the Accession Treaty). From this the CC deduced a constitutional obligation of Lithuania to participate as a fully fledged Member State in the EMU integration by adopting the euro and conferring exclusive competence in the area of monetary policy to the EU. Such an obligation means that the competence of the Bank of Lithuania in the area of monetary policy, inter alia, the issuing of currency, must be conferred on the European Central Bank. The CC pointed out that the constitutional basis for Lithuanian participation in the EMU is Article 1 of the Constitutional Act.46 Second, a group of citizens introduced proposals to amend Article 125 of the Constitution and Article  1 of the Constitutional Act and to organise a referendum concerning the introduction of the euro in 2014. The initiators proposed amending the Constitution in order to re-establish the right of the Bank of Lithuania to issue bank notes. The Central Electoral Commission refused to register the initiative.47 The SACL, after verifying with the CC whether the Central Electoral Commission had such authority under the Constitution,48 supported the findings of the Central Electoral Commission on 18 July 2014 and ruled for the first time that

42 Art 106 para 1 of the EC Treaty. 43 Lithuania started participating in ERM II as of 28 June 2004. In March 2006 it requested the European Commission and the ECB to deliver their opinions on Lithuania‘s performance as regards the convergence criteria. The European Commission concluded that Lithuania satisfies all of them save the inflation. After that the government adopted a new convergence plan which aimed at introduction of the euro in post-2010 times, mainly because of inflation. Then the economic crisis struck, and only in 2013 was there a preliminary agreement that the target date should be 2015. 44 The petitioners argued that the law, by which Art  125 of the Constitution was amended, was adopted in breach of essential procedural rules, because the law, adopted by the parliament, was substantially different from the draft, submitted by the group of MP’s having the right to introduce draft constitutional amendments. Given the fact that the Constitution established specific subjects, having the right to initiate constitutional amendments (in this case it was a quarter of MPs) (Art 147 of the Constitution), the Parliament is not entirely free to modify it, because such modifications would negate that special right of initiative. 45 Ruling of the CC of 24 January 2014. 46 The consequences of such ruling are not entirely clear, for example, one may pose a question, does the positive geopolitical orientation entails the constitutional obligation to participate in all areas of enhanced cooperation or any initiatives, further advancing deeper integration, what are the material limits of such deeper integration? 47 The Commission maintained that such amendments would not be compatible with the Constitution, since they would be in conflict with international commitments undertaken by Lithuania in the course of accession negotiations. 48 Ruling of the CC of 11 July 2014.

Lithuania  409 the referendum initiative (which is directly related to the principle of popular sovereignty) was not in line with Lithuania’s international/EU obligations.49 The SACL, relying inter alia on the jurisprudence of the CC, concluded that Lithuania was obliged under the Accession Treaty and the Constitution, to introduce the euro. The obligation to introduce the euro was established by the Accession Treaty, its contents were known before the popular referendum concerning accession to the EU. Besides, the SACL referred to the ruling of the CC of 24 January 2014 in which the CC pointed out the principle of positive geopolitical orientation and the constitutional obligation to introduce the euro. Therefore, in order to adopt the proposed amendments to the Constitution, prior amendments not only of the Constitutional Act, but of the Accession Treaty would be needed.50 Finally, in order to introduce the euro, Lithuania had to join the European Stability Mechanism (ESM) Treaty. This was done by an Act of Parliament of 18 December 2014.51 The explanatory memorandum submitted by the government to the parliament with the draft ratification law treated the ratification of the ESM Treaty as an additional financial guarantee for the state financial system in case of crisis, pointing out that Lithuania, if needed, could use the support provided by the ESM.52 There were some discussions both within the parliament and in the general public concerning the far-reaching obligations undertaken under the ESM Treaty, but these discussions were to some extent overshadowed by Russia’s aggression in Ukraine, since the accession to the eurozone was viewed in Lithuania not only from an economic but also from a geopolitical perspective. It should be noted as well that the Law on the ratification of the ESM Treaty (Article 2) obliges the government to obtain ex ante approval of the Seimas concerning (a) the maximum lending volume and the adequacy of the authorised capital stock of the ESM under Article 10 para 1 of the ESM Treaty; and (b) possible amendments to the contribution key for subscribing to ESM authorised capital stock under Article 11 of the ESM Treaty if it increases the financial obligations of Lithuania. Furthermore, the government adopted Decree No 181 of 18 February 2015 concerning the representation of Lithuania in the ESM. According to the Decree, if necessary, approval of the Seimas was not received the representative of Lithuania must abstain during the vote. Given the fact that at the time of establishment of the European Financial Stability Facility (EFSF), Lithuania was not part of the eurozone and that the ESM was subsequently established, Lithuania had no obligation and decided not to participate in the EFSF.

49 By adopting such a decision the CC basically ensured the stability and values of the Constitution relying, among other things, on the principle of positive geopolitical orientation. 50 Ruling of the Supreme Administrative Court of Lithuania of 18 July 2014 in Case No R-858-11-14. The petitioners claimed as well that in general they accept the obligation to introduce the euro established by the Accession Treaty. However, the Treaty itself does not define the exact moment when Lithuania has to introduce the euro. Thus, the nation has the constitutional right to organise the referendum on this issue. In response to that argument the Supreme Administrative Court noted that Lithuania satisfied the convergence criteria established by EU law, it has taken consistent steps in order to introduce the euro for more than 10 years, including amendments of Article 125 of the Constitution. Besides, at the moment of adoption of the decision of the Central Electoral Commission, Lithuania’s obligation to introduce the euro has been clearly defined, since both the European Commission and the European Central Bank have already given positive opinions concerning such introduction, and the EU Council had to adopt the final decision within next several weeks. Thus, organisation of the referendum in this context would breach the principle of good faith under international law and the principle of loyal cooperation established by Art 4 of the EU Treaty. 51 82 MPs voted in favour; one against and one abstained. 52 The government stressed the strict conditionality concerning implementation of the macroeconomic adjustment programmes in case of support from the ESM and pointed to the highest borrowing ratings awarded to the ESM by international agencies. The issue of the form of establishment of the ESM (international treaty) was not raised and discussed during the ratification process.

410  Irmantas Jarukaitis

C.  Constitutional Aspects of Crisis Management Measures Following its EU accession, the fiscal rules adopted in Lithuania were predetermined by several factors. First, being an EU Member State, Lithuania had to comply with the requirements of the Stability and Growth Pact. Second, the government adopted the National Changeover Plan on 29 September 2005 with the aim of introducing the euro in 2007. Third, although the period between 2005 and 2007 was characterised by strong economic growth, the general governmental balance remained in deficit. Fourth, in this environment the parliament adopted the Law on Fiscal Discipline on 8 November 2007.53 However, this proved insufficient and the last economic crisis severely hit Lithuania.54 Nevertheless, Lithuania managed to quickly restore stability and economic growth,55 although certain parliament and government measures were particularly drastic (sharp reduction of salaries in the public sector and of various social benefits, including pensions). Besides, the government decided to borrow from markets rather than from the IMF or other international institutions, thus, Lithuania has not been subject to any EU or international bailout or austerity programmes.56 With respect to the constitutional aspects of the crisis management measures, it should be noted that the latest economic crisis has not prompted any constitutional amendments in Lithuania, save for implementation of the Treaty on Stability, Coordination and Governance (the Fiscal Compact Treaty). In general, the Constitution places the emphasis on the central role of the parliament in budgetary matters.57 Furthermore, under Article 128 para 1 of the Constitution, ‘Decisions concerning the State loan and other basic property liabilities of the State shall be adopted by the Seimas on the proposal of the Government’. Subsequently, the CC expanded the principle of democracy to the extent that all decisions related to ‘basic property liabilities’, ie having significant financial implications for the state budget, have to be approved by the parliament.58

53 The main objective of the law was to manage government finances in a manner that ensures general government balance being in surplus or close to balance in the medium term (Art 3 para 1 of the law). In order to ensure this, the rule restricting expenditure from the state budget (excluding EU funds), which comprises the largest part of the general government expenditure, was established. The main objective of the expenditure restricting rule was to ensure that state budget expenditure does not grow faster over the planned year than by half of the average annual increase of state budget revenue over the last five years, if no exceptions envisaged in the law are applicable. The expenditure limiting rule covered the period of five years. 54 The most cited reasons were the global recession and the price bubble in the real estate sector. Lithuanian GDP fell by 18% in the first quarter of 2009. National debt increased more than twice during 2008–10, the rate of unemployment by four times. 55 Although a look at the Global Competitiveness Index (www.reports.weforum.org/global-competitivenessindex-2017-2018/countryeconomy-profiles/?doing_wp_cron=1534936723.1063470840454101562500#economy=LTU) shows moderate achievements of Lithuania (being 41th among 137 economies), it should be noted that while before 2004 the GDP of Lithuania was around 46% of the EU average, by 2014 it had reached the level of 75%: www.urm.lt/default/lt/ uzsienio-politika/uzsienio-politikos-prioritetai/lietuva-europos-sajungoje/lietuvos-naryste-es. Recent estimates predict that Lithuania’s GDP should reach 90% of the EU average by 2025 (www.vz.lt/verslo-aplinka/2018/05/11). The last three years witnessed rapid economic growth (2.5–4% per year), the decrease of national debt to 39% and the budget surplus, although unemployment remains a bit higher than the EU average. 56 This decision of the government received much criticism, because the interest rates on the international markets were much higher than those proposed by the IMF. One of the explanations for this decision was the argument that the conditions imposed by the IMF would reduce the government’s ability to implement its own policies. Moreover, the probability of devaluation of the national currency also played its part. For more details, see, for example, www.networkideas.org/ featart/apr2013/pdf/Kattel_Raudla.pdf; www.euobserver.com/opinion/114419. 57 As mentioned above, according to the jurisprudence of the CC, only the Seimas is representative of the nation (Art 4 of the Constitution); under Art. 67 and 94 of the Constitution only the parliament adopts the budget. Besides, the government alone has the right and duty to prepare the draft budget; only the government has the right to propose amendments to the adopted budget (see the ruling of the CC of 14 January 2002). 58 For example, see the ruling of the CC of 18 October 2000.

Lithuania  411

III.  Constitutional Obstacles to EMU Integration When it comes to judicial review of various macroeconomic policy formation and implementation measures adopted by political institutions, over time the CC has adopted an approach similar to that of the CJEU.59 The CC stresses the wide discretion of political institutions, which means that from the point of view of the principle of proportionality, it uses the test of manifest error, instead of strict proportionality review.60 Nevertheless, the CC underlines the necessity to observe general principles of law61 and does not hesitate to annul measures, including those adopted during the crisis, which breach those principles.62 As a result, the necessity to balance the state budget revenues and expenditures (especially in the wake of Lithuania’s accession to the EMU) found its way into the CCs jurisprudence.63 This approach to fiscal discipline is applicable not only to crisis measures, but, through the use of the principle of good governance, it is also translated into the general constitutional imperative of sound management of public finances.64 Once the crisis started, various interrelated measures were adopted by legal acts below the Constitution. First, as mentioned above, the Law ratifying the ESM Treaty established a duty for the government to seek the approval of the parliament in certain cases. Second, once the parliament ratified the Fiscal Compact Treaty by the Law of 28 June 2012, Lithuania committed to implement its obligations.65 Although there were some discussions in parliament as regards its compatibility with the Constitution,66 the main conclusion was that the competencies and

59 See for example, Case C-62/14, Gauweiler et al, EU:C:2015:400, para 68. 60 The same approach is followed in the jurisprudence of the Supreme Administrative Court of Lithuania; such attitude is at least partially predetermined by Art 3 para 2 of the Law on Administrative Proceedings, according to which administrative courts shall not perform the review of contested administrative acts from the point of view of political or economic expediency. 61 For example, in its ruling of 31 May 2006, the CC stressed that ‘[u]nder the Constitution, the Seimas as the institution of legislative power and the government as an institution of executive power enjoy very broad discretion to form and execute the economic policy of the state (each according to their competence) and to properly regulate economic activities by means of legal acts, by not violating the Constitution and laws, inter alia by not exceeding the powers established in them to the said institutions of state power and by following the requirements of the proper legal process which stems from the Constitution and the principles of a state under the rule of law, of separation of powers, of responsible governance, of protection of legitimate expectations and the principles of legal clarity, certainty and security’ (emphasis added). 62 For example, by its ruling of 6 February 2012 the CC ruled, inter alia, that the reduction of social pensions for working persons contravened Art 48 para 1 of the Constitution, as ‘[e]ach human being may freely choose a job or business’; in the ruling of 5 March 2013, the CC ruled that certain aspects of the reduction of maternity allowances were not in line with the principle of the rule of law (were not proportionate); in the ruling of 1 July 2013 the CC decided that the unequal reduction of the salaries of state officials, where the salary reductions of highly paid state officials were greater in comparison to those of persons who earned less, was not in line with Art 29 para 1: ‘All persons shall be equal before the law’, Art 48 para 1: ‘Each human being … shall have the right … to receive fair pay for work’ of the Constitution and the principle of the rule of law (proportionality principle). 63 For example, in its decision of 7 March 2014 (interpreting the ruling of 6 February 212) the CC pointed out that ‘the legislature should fix the starting date and reasonable time limits for compensation for … the reduced … old-age pensions … taking into consideration the effects of the peculiar situation as well as the State’s capacities, including various commitments undertaken by the State in relation to, inter alia, fiscal discipline and, thus, also the imperative of balancing State budget revenues and expenditure’ (emphasis added). 64 According to the CC, the government, submitting a draft budget to the parliament, is obliged to ‘substantiate the revenues and allocations indicated therein with the evaluation of the needs and possibilities of the state and the society’; the Seimas, when adopting the budget, is obliged to take ‘into consideration the existing social and economic situation, the needs and possibilities of the society and the state, the available or potential financial resources and the liabilities of the state, as well as a number of other important factors’. See the ruling of the CC of 14 January 2002. 65 Besides, when Lithuania introduced the euro, Two Pack provisions became applicable as well. 66 The main discussions revolved around the question to what extent the powers of the European Commission under the correction mechanism encroach upon the powers of the government to prepare the draft of a budget.

412  Irmantas Jarukaitis obligations of the Seimas and the government are not modified in a profound way. According to the government, the obligations as regards the principle of balanced budget and corrective mechanisms in essence corresponded to those stemming from the jurisprudence of the CC.67 Third, the parliament adopted the Republic of Lithuania Constitutional Law on the Implementation of the Fiscal Treaty on 6 November 2014.68 This Law established detailed provisions implementing the Fiscal Compact Treaty and, with some exceptions, came into force as of 1 January 2015. The main objective of the Constitutional Law is essentially similar to that of the Law on Fiscal Discipline – to ensure sustainability of general government sector finances and a stable development of the economy (Article 1 of the Constitutional Law). It does so by managing the structural general government balance (instead of the nominal one). The Constitutional Law provides that the medium-term objective will be pursued by establishing each year the annual step towards the medium-term objective – the structural impetus target. Structural adjustment targets for the current and subsequent year as well as their guidelines for the remaining years of the medium term are set by the Seimas. The parliament is obliged to adopt a legal act by 30 June of the current year, but not later than before the adoption of the law on approval of financial indicators of the state budget and municipal budgets for the year planned or the adoption of the law amending the law on approval of financial indicators of the state budget and municipal budgets for the current year. The government has to submit proposals to the Seimas on the need for specific structural adjustment targets and their guidelines for the remaining years of the medium term. Furthermore, the government also submits to the Seimas the proposals on the need for specific measure guidelines for implementation of these targets. It should be noted that the Seimas may establish structural adjustment targets and their guidelines for the remaining years of the medium term only after receipt of the conclusion of the monitoring authority (this role is assigned to the State Audit Office of the Republic of Lithuania) (Article 6 of the Constitutional Law). According to the legal act adopted by the Seimas, the medium-term objective is also established for the three-year period. However, it may not be higher than the limit envisaged in the Fiscal Compact – the structural deficit of 0.5 per cent of GDP (Article 5 of the Constitutional Law). Unlike the Law on Fiscal Discipline of 2007, the Constitutional Law established the fiscal rule applicable to the whole general government sector, not only to the state budget.

A.  Further Fiscal, Economic and Monetary Integration and its Constitutional Limits Having regard to the above-described legal and factual developments, especially discussions during the ratification of the ESM Treaty and the Fiscal Compact Treaty, it is unlikely that recent EU initiatives, related to fiscal discipline and crisis management,69 would pose constitutional problems in Lithuania. At least from the point of view of national constitutional law they would not introduce a radically new framework. Besides, in light of the calls to enhance democratic

67 See nn 57, 63–64. 68 Under Art 69 of the Constitution constitutional laws are adopted by majority of all MPs, and, according to jurisprudence of the CC fall below the Constitution but above ordinary laws in the hierarchy of Lithuanian legal system. Thus, it could be seen as the compromise in the light of Art 3 para 2 of the Treaty. 69 Notably, European Commission, ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation of the Member States’, COM (2017) 824; European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’, COM (2017) 827.

Lithuania  413 legitimacy of the EMU governance,70 the provisions of the draft Statute of the European Monetary Fund would provide for some accountability of the Fund to the European Parliament,71 while the role of national parliaments would be nominally increased by establishing their right to receive information on the activities of the Fund.72 Furthermore, it seems that the Reform delivery tool73 aims at modifying the approach to fiscal discipline and implementation of structural reforms from austerity management profile, to financial promotion of necessary macroeconomic reforms. Such a shift of regulatory philosophy, at least theoretically, could increase the social acceptance, and, thus, the effectiveness of such measures. In the long run this shift could lead to a deeper sense of mutual trust and solidarity among peoples of the EU. So far both the general and the scholarly discussions concerning the future directions for EU development, in general, or EMU reform scenarios, in particular, are rather limited in Lithuania. They are limited even though the parliament74 and the Ministry of Foreign Affairs75 recently organised several discussions in various formats on the subject. Overall, the support of Lithuanian society for EU membership was and remains one of the highest in the EU. The CC’s jurisprudence placing such membership in terms of geopolitical choice basically reflects the general mood within society. Being a small EU Member State situated on the geopolitical tectonic fracture results in a general sense of agreement that Lithuania needs a strong and integrated EU, whatever that would mean. Discussions on constitutional implications of EMU reform scenarios have largely revolved around two interrelated issues. These issues are compliance with the agreed (and further developed) EU regulatory framework and the appropriate democratic legitimacy and accountability of decision-making.76 Indeed, one may agree with the proposition that those two may contradict each other, and that the prospects of further economic integration depend first and foremost on the match of EU ‘political’ and ‘legal’ constitutions.77 In this author’s opinion, this is the basic precondition in order to establish deeper mutual trust and solidarity. Thus, one of the main questions is, to what extent reforms would address the deficiencies of political constitution and the probability of free-riding. 70 For example, Hermann-Josef Blanke, Robert Böttner, ‘The Democratic Deficit in the (Economic) Governance of the European Union in H-J Blanke et al (eds) Common European Legal Thinking (Basel, Springer International Publishing, 2015) 243. 71 Art 5 of the draft Council Regulation on the establishment of the European Monetary Fund, COM (2017) 827. 72 Art 6 ibid. 73 European Commission, ‘Proposal for a Regulation amending Regulation (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 as regards support to structural reforms in Member States’, COM (2017) 826. 74 See the transcript of the Seimas plenary session of 22 November 2018, www.lrs.lt/sip/portal.show?p_r=15831&p_ k=1. Overall, discussions reflect a general consensus that membership within the EU is vital to Lithuania’s security and well-being. Still, when it comes to details, discussions within the parliament expose usual polarisation of varying views from supporters of ‘nations Europe’ to proponents of deeper EU integration. See as well various positions of MPs on the subject: www.lrs.lt/sip/portal.show?p_r=15894&p_k=1. 75 See the summary of the consultations ‘My Europe’ organised by the Ministry of Foreign Affairs of Lithuania with the citizens in 2018, www.urm.lt/uploads/default/documents/Pilie%C4%8Di%C5%B3%20dialog%C5%B3%20Mano%20 Europa%202018%20ataskaita.pdf. The consultations revealed that Lithuanians are in favour of deeper EU integration and think that Lithuania should be at the forefront of it, but, at the same time, respect for national identity must be ensured. The lack of sense of community and common EU vision, unequal distribution of economic prosperity and social exclusion, rising populism/euroscepticism were identified as the main challenges for the EU. 76 For example, Koen Lenaerts, ‘EMU and the European Union’s Constitutional Framework (2014) 39 European Law Review 753. 77 Dariusz Adamski, ‘Europe’s (Misguided) Constitution of Economic Prosperity’ (2013) 50 CML Rev 47.

414  Irmantas Jarukaitis Looking at this question from the point of view of the Constitution, one must rely on the recent jurisprudence of the CC. As mentioned above, the CC treats fully fledged EU membership as a constitutional value and develops the principle of positive geopolitical orientation. On the other hand, in its ruling of 24 January 2014 the CC hinted at the core constitutional values (independence, democracy, republic and the innate nature of human rights), which may not be negated. It seems that for the CC this is the ‘constitutional nucleus’, the expression of the constitutional identity which may not be transgressed. It must not be overlooked that the crucial word in this construction is ‘negated’. It means that the CC is ready to some extent to accept certain modifications. Lithuania’s EU membership already modified the principle of democracy in a profound way, although such modification was preceded by the constitutional reform. On the one hand, the CC’s conception of Lithuania’s EU membership in terms of geopolitical choice, seems to support the premise that the Constitution is flexible enough to embrace future steps of deeper integration as regards national budgetary policy control or crisis measures. From that perspective the attitude of the Supreme Court of Estonia treating the ratification of the ESM Treaty as an (acceptable/proportionate) limitation of the principle of democracy, seems compelling also for Lithuania.78 On the other hand, given the fundamental nature of the budgetary powers of the Seimas, any veto powers on the part of EU institutions in the course of adoption of the national budget would hardly be in line with Article 67 para 14 of the Constitution.79 Likewise, the question could be posed, whether the loss of such powers at the national level could be counter-balanced by the increase of powers of the European Parliament without amending the Constitution, should the scenario involving the establishment of EU revenue-raising and spending powers be chosen. The budgetary function of the national parliament is at the heart of the principle of democracy. The national budget is the expression of the solidarity within society reflected in the national polities. The transfer of such powers to the supranational level would have a significant impact on this constitutional function of the national budget. Thus, the position of some national courts, stressing that national parliaments must retain control of fundamental budgetary decisions, is understandable.

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law The attitude of authors concerning the impact of new budgetary arrangements at the EU level on the powers of national courts differs.80 When it comes to the parliament of Lithuania, as mentioned above, Article  3 of the Constitutional Act secures a tight consultation procedure 78 Judgment of the Estonian Supreme Court of 12 July 2012 in case 3-4-16-12. It seems that both EU and national courts validated the majority of measures adopted during the last economic crisis: Frederico Fabbrini, ‘The Euro-crisis and the Courts: Judicial Review and the Political Process in Comparative Perspective’ (2014) 32(1) Berkeley Journal of International Law, 64. 79 ‘The Seimas … shall approve the State Budget and supervise its execution. 80 For example, Dawson and De Witte point out that due to the time constraints imposed by the European Semester, it is very difficult for national parliaments to control the executives (Mark Dawson, Floris De Witte, ‘Constitutional Balance in the EU after the Euro-Crisis’ (2013) 76 Modern Law Review 817), while Keppene stresses that reforms, including the involvement of independent supervisory authorities, have helped the national parliaments to perform their functions more effectively (Jean-Paul Kepenne, ‘Institutional Report’ in U Neergaard, F Amtenbrink, International Federation for European Law, Congress, Economic and Monetary Union: Constitutional and Institutional Aspects of the Economic Governance within the EU (Copenhagen, Djøf Publishing, 2014) 179).

Lithuania  415 between the Government and the Parliament in EU matters in general, and so far the system seems to function quite efficiently. It should be noted that the Statute of the Seimas establishes detailed rules on the consultation procedure, which could be summarised in the following way. The Statute accords the main powers for parliamentary control to the European Affairs Committee and, in the field of the Common Foreign and Security Policy and other external issues, to the Foreign Affairs Committee, which are given the power to issue opinions on behalf of the parliament. In some cases the Statute requires discussions to be held (for example, deliberations on the compliance of draft EU legal initiatives with the principle of subsidiarity) not in the European Affairs Committee but in the plenary session. The government has a duty to inform the Seimas in writing of proposals to adopt EU legal acts and other relevant EU documents. Once the European Commission communicates its annual work programme, the specialised committees of the Seimas identify the priorities for the upcoming year in order to focus on the issues that are most relevant for Lithuania, and the finalised version of these priorities is submitted to the government. The institution responsible for the preparation of the Lithuanian position concerning a proposal to adopt an EU legal act or other EU documents has the obligation to submit the position to the Seimas immediately after its preparation, and no later than three days prior to the debate on this position in the EU institutions. At the executive level, the formation of the Lithuanian position is initiated and conducted through the LINESIS electronic platform, which records all the changes made in the Lithuanian position throughout its preparation. Once received in the Seimas, the position is forwarded to the specialised committees and to the European Affairs Committee or the Foreign Affairs Committee. Having deliberated on a position, a specialised committee may either approve the position or propose amendments and review of the position. Its position is then communicated either to the European Affairs Committee or the Foreign Affairs Committee. The position is deliberated at a meeting of the European Affairs Committee or the Foreign Affairs Committee where the Prime Minister or the appropriate minister presents the position and answers questions. The conclusions of the specialised committees are presented and discussions on the position are held. The committee decides by consensus or by a vote whether it should, on behalf of the Seimas, state its opinion about the position. If so, the chair of the meeting proposes the wording of the opinion, and the opinion is adopted in a vote. Both committees may oblige a minister to maintain a parliamentary reservation during the deliberation of issues that are considered as highly relevant or relevant in the EU institutions. Article 180(17) of the Statute obliges the prime minister and ministers to submit an oral or written report on the status of the Lithuanian position after the relevant meeting of the European Council or the EU Council. Article 180(6) of the Statute also establishes a subsidiarity control procedure, according to which draft EU legislation is scrutinised by the specialised committees and their positions are submitted to the European Affairs Committee or the Foreign Affairs Committee. If one of these committees decides that a draft EU law does not respect the principle of subsidiarity, it prepares a draft Seimas resolution with a reasoned opinion. The resolution is debated by the Seimas sitting in accordance with the special urgency procedure. If adopted, the Seimas resolution regarding the reasoned opinion is forwarded to the government.81 For its part, the Law on the Budget Structure obliges the government to submit to the parliament all relevant recommendations of the European Commission, other international institutions together with the draft budget.82 81 See Ch XXVII of the Statute of the Seimas, last amended 27 September 2018: www.e-seimas.lrs.lt/portal/legalAct/lt/ TAD/d9766070c2f511e883c7a8f929bfc500?jfwid=39x432mh7. 82 Art 19 of the Law.

416  Irmantas Jarukaitis Thus, the national regulatory framework establishes tight cooperation procedures between the parliament and the government.

V.  Resulting Relationship between EU Related Law and National Law The complex constitutional reform that provided a clear constitutional basis for Lithuania’s EU membership in anticipation of Lithuania’s EU accession has so far proved to be flexible enough to embrace further developments. This flexibility includes eventual Lithuanian membership in the EMU. The CC’s jurisprudence conceptualising Lithuania’s EU membership in terms of (positive) geopolitical choice and treating it as a constitutional value further secures smooth acceptance of rules, stemming from the supranational legal order. When it comes to budgetary powers and crisis management measures, one may note the structural compatibility of principles, developed over time by the CC and those underlying various measures adopted at the EU level. Such compatibility reduces to a great extent the prospect of constitutional conflict between the EU and the national levels. As regards the budgetary discipline, the EU rules basically reinforce the requirements stemming from the Constitution and add another layer of control. When it comes to further fiscal, economic and monetary integration, one must not overlook the fact that its viability and success depend first and foremost on respecting the rule of law principle. Only effective observance of the agreed legislative framework may create preconditions for further solidarity and mutual trust among the European peoples. This, in turn, is a basic precondition for further modification of the principle of democracy, which is at the core of national constitutions.

References A Abramavičius, ‘Narystė Europos Sąjungoje ir Lietuvos Respublikos Konstitucinio Teismo įgaliojimai’ (2006) Konstitucinė jurisprudencija. Lietuvos Respublikos Konstitucinio Teismo biuletenis 311. D Adamski, ‘Europe’s (Misguided) Constitution of Economic Prosperity (2013) 50 CML Rev 47. J Bardach, Konstytucja 3 Maja 1791. 1791 gegužės 3-osios Konstitucija. The Constitution of May 3, 1791, (Warszawa, Wydaw Sejmowe, 2001). H-J Blanke, R Böttner, ‘The Democratic Deficit in the (Economic) Governance of the European Union in H-J Blanke et al (eds) Common European Legal Thinking (Basel, Springer International Publishing, 2015). M Dawson, F De Witte, ‘Constitutional Balance in the EU after the Euro-Crisis’ (2013) 76 Modern Law Review 817. European Commission, COM (2017) 824, ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation of the Member States’. European Commission, COM (2017)826 ‘Proposal for a Regulation amending Regulation (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 as regards support to structural reforms in Member States’. European Commission, COM (2017) 827, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’.

Lithuania  417 F Fabbrini, ‘The Euro-crisis and the Courts: Judicial Review and the Political Process in Comparative Perspective’ (2014) 32(1) Berkeley Journal of International Law 64. E Jarašiūnas, ‘Jurisprudencinė konstitucija’ (2006) 12(90) Jurisprudencija. I Jarukaitis, ‘Adoption of the Third Constitutional Act and its Impact on the National Constitutional System’ (2006) 60 Teisė/Mokslo darbai. I Jarukaitis, ‘Europos Sąjungos ekonominė Konstitucija kaip papildoma Lietuvos Respublikos Konstitucijos dimensija: tyrimų kontūrai’ (‘The European Union Economic Constitution as the Additional Dimension of the Constitution of the Republic of Lithuania: Contours of the Research’) (2014) 2(84) Teisės problemos 26–99. I Jarukaitis, ‘Report on Estonia, Latvia and Lithuania’ in G Martinico, O Pollicino (eds), National Judges and Supranational Laws: on the Effective Application of the EC Law and the ECHR (Groningen, Europa Law Publishing, 2010). I Jarukaitis, ‘Lithuania‘s Membership in the European Union and Application of EU law at National Level’ in A Lazowski (ed) The Application of EU Law in the New Member States: Brave New World (The Hague, TMC Asser Press, 2010). I Jarukaitis, Lietuvos Respublikos narystės Lietuvos Respublikoje konstituciniai pagrindai (Vilnius, Justitia, 2011). I Jarukaitis, G Švedas, ‘The Constitutional Experience of Lithuania in the Context of European and Global Governance Challenges’ in A Albi, S Borducki (eds), National Constitutions in European and Global Governance: Democracy, Rights, the Rule of Law (Oxford, Oxford University Press, 2019). JP Kepenne, ‘Institutional Report’ in U Neergaard, F Amtenbrink, International Federation for European Law, Congress, Economic and Monetary Union: Constitutional and Institutional Aspects of the Economic Governance within the EU (Copenhagen, Djøf Publishing, 2014) 179. E Kūris, ‘Koordinaciniai ir determinaciniai konstituciniai principai (II)’ (2002) 27(19) Jurisprudencija 59. E Kūris, ‘Lietuvos Respublikos Konstitucija ir Europos teisės iššūkiai’ (2004) 6 Justitia 34. K Lenaerts, ‘EMU and the European Unions Constitutional Framework’ (2014) 39 European Law Review 753. E Šileikis, Alternatyvi konstitucinė teisė (Vilnius, Teisinės Informacijos Centras, 2005). E Šileikis, ‘Aktyvistinė konstitucinė justicija kaip subtili diskrecija inspiruoti teisinius modelius’ (2006) 12(90) Jurisprudencija 51. E Šileikis, ‘The Influence of Lithuanian membership in the European Union and the Interpretation of the Lithuanian Constitution’ in H Šinkūnas, J Bernatonis, G Švedas, Faculty of Law, Vilnius University/1 et al, Lithuanian Legal System Under the Influence of European Union Law (Vilnius, Vilnius University, 2014). VA Vaičaitis, ‘The Republic of Lithuania’ in C Kortmann, J Fleuren, W Voermans (eds) Constitutional Law of 10 EU Member States: The 2004 Enlargement (Deventer, Kluwer, 2006). R Yakemtchouk, ‘Les Républiques Baltes En Droit International: Echec Dune Annexation Opéreé En Violation Du Droit Des Gens’ in Annuaire Français De Droit International XXXVI (Paris, CNRS, 1991) 259. D Žalimas, ‘Legal Issues on the Continuity of the Republic of Lithuania’ (2001) 1 Baltic Yearbook of International Law 1.

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17 Luxembourg JÖRG GERKRATH

Abstract: Luxembourg is a well-integrated founding state participating in every field of EU integration. Its EU and EMU memberships rely, however, on feebly developed constitutional foundations. This is yet to be changed by a major constitutional overhaul that is expected to finish in 2019. Three patterns must be borne in mind to understand the country’s constitutional culture: the Constitution had been somewhat forgotten, its political system is functioning according to the idea of a ‘consensus democracy’, and its leading political principle is pragmatism. The only limit to further economic, fiscal and monetary integration is the requirement of a two-thirds parliamentary majority in order to approve any competence-transferring treaty. In line with the pure monistic tradition, the domestic legal order is conceived in a way to avoid conflicts with international or EU law. EU norms enjoy full primacy even vis-à-vis constitutional rules. Key words: Europe clause, EMU membership, constitutional identity, golden rule, Independence clause.

I.  Main Characteristics of Luxembourg’s Constitutional System and Culture The current Constitution of Luxembourg dates from 17 October 1868. Since then, it has been revised 38 times. It is a written Constitution and characterised as a rigid system. Because of its fundamental nature, it is less prone to changes than ordinary law. It is composed of 121 articles, divided into 13 chapters. It describes the constituent foundations of the state, the guarantee of the rights and liberties of the citizens and the organisation of powers. Since 2009, MPs have been working on a complete overhaul of the current Constitution. The objective is to adapt Luxembourg’s fundamental law to the needs of a modern democracy. These reflections were carried out within the Constitutional Review Commission. A qualified majority of two-thirds of the 60 deputies is required in a vote in the House for any change to the Constitution. On 6 June 2018, MPs adopted a report that marks the end of the discussions on the new Constitution. It sets a final version of the text and retains the political agreement of a large majority of MPs. The question of when a first vote could be held in the Chamber will have to be decided after the European elections in May 2019. The second vote will most likely be replaced by a referendum.

420  Jörg Gerkrath

A.  Luxembourg’s Constitutional System Including the Judiciary Devoted mostly to institutional and organisational aspects, the Constitution does not include a preamble, which could provide information about its leading rationale. Compared to other constitutions, the part on fundamental rights appears neglected, whereas the rules on the functioning of the state and the exercise of the powers by the institutions are developed in greater detail. The Constitution establishes the Grand Duchy as a unitary, democratic, free, independent and indivisible state headed by a constitutional monarch and governed by a system of parliamentary democracy. Sovereignty resides in the nation but is exercised by the Grand Duke in accordance with the Constitution and national law. The Constitution mentions specifically the executive, legislative and judicial branches of Luxembourg’s system of government. As head of the state, the Grand Duke formally holds the executive power as well as a number of constitutional prerogatives, which are exercised by the government. All his measures – besides those that merely touch the Grand Ducal Court – have to be counter-signed by a member of the government. The national parliament consists of a single chamber: The Chamber of Deputies (Chambre des Députés). The State Council (Conseil d’Etat) is an advisory body of the government and its opinions on legislative bills (and grand-ducal draft regulations) strongly influence the legislative procedure. As the main advisory organ, which understands its proper role as ‘guardian of the Constitution’ and other sources of ‘higher law’, it exercises indeed a moderating function within the parliamentary procedure similar to that of a second chamber. The judiciary is structured in three branches comprising ordinary courts (juridictions judiciaires), administrative courts and courts specialised in the field of social security. These courts review the conformity of domestic legislation with international and European law but are not entitled to assess the constitutionality of parliamentary acts. In case of doubt, they have to refer the matter to the Constitutional Court by introducing a preliminary question. The Constitutional Court was created only recently by a constitutional amendment of 12 July 1996 and an Act of 27 July 19971 to exercise ex post constitutional review of laws. Its function is to examine the constitutionality of ordinary statutes, apart from laws approving treaties, which are explicitly excluded from judicial review. Thus, EU revision treaties as well as the Treaty on Stability, Coordination and Governance (TSCG, Fiscal Compact) and the Treaty Establishing the European Stability Mechanism (TESM) – being treaties under public international law – could not be challenged before the Constitutional Court. If a party questions the constitutionality of a legal rule before an ordinary or administrative court, and if the issue of constitutionality is deemed vital to the solution of a dispute, the court must refer the matter – explicitly citing the specific legal norm in question – to the Constitutional Court. The public has no direct recourse to the Constitutional Court. From 1998 until December 2018, the Constitutional Court delivered 142 judgments. Most concerned the principle of equal treatment enshrined in Article 10bis of the Constitution.2 The effects of judgments of the Constitutional Court are, in principle limited to the litigation, which raised the preliminary question. The Chambre, therefore, remains free in its response to adverse judgments of the Court. Several legal provisions declared contrary to the Constitution remain in place.

1 Loi du 27.7.1997 portant organisation de la Cour Constitutionnelle. 2 Jörg Gerkrath (ed), La jurisprudence de la Cour Constitutionnelle du Luxembourg 1997–2007 (Luxembourg, Pasicrisie, 2008), Jörg Gerkrath (ed), Les 20 ans de la Cour Constitutionnelle: trop jeune pour mourir?, (Luxembourg, Pasicrisie, 2018).

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B.  Constitutional Culture and Significance of the Constitution in the Legal System The current Constitution tends to be rather ‘evolutionary’ in nature. Although it is part of the positive law in force, it is at the same time considered a historical and political document rather than a truly normative one. Consequently, there is quite a difference between the written document and the ‘living constitution’. A first distinguishing element of Luxembourg’s constitutional culture is that political and legal actors lack interest in constitutional law. Though many efforts were made to modernise branches of law such as banking or media law, the Constitution had been to some extent forgotten.3 The monistic tradition of the Grand Duchy’s legal order and the principle of primacy of international law led judges and lawyers to invoke and apply human rights based on international treaties rather than stemming from the Constitution. Thus, the main source of human rights in Luxembourg is the European Convention on Human Rights (ECHR). Many practices and usages have developed praeter legem besides the old Constitution. The political actors, thus, often prefer to refer to such practices than to the formal rules of the Constitution that proved furthermore to be difficult to revise because of a stringent amendment procedure in place until 2003. This previous procedure required, first, a positive vote in favour of a constitutional amendment by the Chambre des Députés, second dissolution of the Chambre followed by the election of a new Chambre and, third, the adoption of the amendment by a majority of two-thirds of its members. The Grand Duchy of Luxembourg developed a particular model of consensus democracy, sometimes referred to as the ‘Luxembourgish model’. This model of a Konsensdemokratie functions very well in a small country like Luxembourg where, in addition to the political parties and trade unions, the different interest groups are well organised through a system of professional chambers. The political system is strongly characterised by stability, proximity to the citizens and a common desire to make decisions based on consensus. This is particularly true for decisions on constitutional revision, which are mostly supported by more substantial parliamentary majorities than necessary (40/60) and very often taken unanimously. All political actors also share a strong attachment to the ‘Luxembourgish social model’. This model is based on an ‘index’ mechanism of automatic salary rises according to the inflation rate, powerful trade unions. It also benefits from the tradition to negotiate important reforms – touching eg the labour market, the pensions system or the social security policy – within the so-called ‘Tripartite’, ie, representatives from the government, the trade unions and the employers. In the Grand Duchy’s legal order, the law is considered as a toolbox, an instrument to regulate the social sphere. Written mainly in French at present, the law is a result of a multitude of legal transfers. Constitutional law is rooted mostly in the nineteenth century’s Belgian constitutional law while featuring elements from German constitutional monarchy. If there is something specific in Luxembourg’s legal culture, it is possibly this uninhibited attitude, in the case of problems, to look beyond the immediate boundaries to seek the appropriate legal solution. Without falling into a blind adulation of the solutions of a country, in particular, the usual approach is to compare, evaluate, choose and combine foreign legal solutions in order to make them work in Luxembourg. The introduction of the Constitutional Court did not generate a major shift with regard to the significance of the Constitution in the legal system. Its jurisdiction is strictly reduced to a detailed



3 Alain

Bonn, La Constitution oubliée (Luxembourg, Imprimerie Centrale, 1968).

422  Jörg Gerkrath review of legal norms in individual cases, and its short judgments are written in a rather technical style. As the review of laws approving treaties is explicitly excluded from its jurisdiction, its rather modest case law does not contain any clarifications in this field. The review technique applied by the Constitutional Court leads to a rather narrow and abstract way of reviewing the constitutionality of enacted laws. The Court confines itself to reviewing the legal disposition referred to it against the articles of the Constitution specified in the preliminary question. It does not review the constitutionality of the law in question as a whole, nor does it extend its review to other articles or principles of the Constitution that have not been explicitly cited. Furthermore, the Court adheres to a rather literal interpretation of the wording of the Constitution.

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments The current Constitution does not contain any explicit foundation for an EU or EMU membership. Since an amendment of 1956, Article  49bis allows simply for ‘the exercise of powers reserved by the Constitution to the legislative, executive, and judiciary branches to be temporarily vested, by treaty, in institutions of international law’. According to Articles 49bis, 37 and 114 of the Constitution, such treaties are to be approved by law and meet the voting requirements established for a constitutional amendment. The respective laws have to be passed by a qualified majority of two-thirds of the MPs (40 votes out of 60). No formal amendment is made to the Constitution in these cases. However, as the transfer of competence does drive a ‘constitutional change’ in the broader sense, the Constitution requires the same majority as for an explicit constitutional amendment. The Chamber approved the ratification of the Maastricht Treaty by voting such a law. The EMU membership was not dealt with separately. Luxembourg did not encounter any further legal obstacles in joining the EMU and adopting the single currency. Being a member of the Belgium-Luxembourg Economic Union, the country did not enjoy full ‘monetary sovereignty’ before joining the EMU. Thus, joining the EMU meant for Luxembourg a de facto increase of monetary sovereignty through economic and monetary integration. Articles  99 to 107 of the Constitution provide the constitutional framework for public finances, the budgetary power of the parliament and the budgetary procedure. In the field of fiscal policy, it is the legislator who decides upon taxation matters and approves the annual budgetary laws. Taxes for the benefit of the state ‘may only be established by a law’ (Article 99 C). In addition, communal councils ‘may establish communal taxes, with the approval of the Grand Duke’ (Article 107-3 C). Luxembourg’s tax system strongly reflects influences of the German, Dutch, French and Belgian systems, which were imposed on the Grand Duchy during the historical periods, when it was part of these countries. The German legislation on direct taxation, in particular, is still part of Luxembourg’s legal system following a grand-ducal decree of 1944. Furthermore, administrative interpretation of tax legislation by means of administrative circulars, ministerial instructions, advance tax rulings and ‘comfort letters’ plays an essential role because of the complex situation caused by the coexistence of German procedural laws of the 1930s and the Luxembourg income tax law from 1967. The so-called ‘golden rule’ on budgetary equilibrium, introduced by the TSCG, was not brought into the Constitution but written into ordinary legislation. In the same vein, Luxembourg constituted already its Central Bank by the ordinary statute of 23 December 1998 as établissement public indépendant within the ESCB. From the start, the Banque Centrale du Luxembourg

Luxembourg  423 (BCL) was created to participate in the EMU − a truly distinctive characteristic compared to other NCBs that existed before the creation of the ESCB, and which had to adapt to this new institutional scheme. The BCL is, therefore, a national institution with a deep sense of its European mission. Since an amendment of its organic Law by the Law of 24 October 2008, the BCL has been granted regulatory power. It may pass regulations in the exercise of such power and the fulfilment of the tasks entrusted to it. In the absence of any specific ‘EU clause’ in the Constitution, Luxembourg’s membership within the EU, as well as its participation in any further steps of economic, fiscal or monetary integration, is currently governed by the general constitutional provisions on treaties. Regarding the ratification of treaties, Article 37 of the Constitution provides that treaties are operative after being approved by law and published in the form specified for the publication of laws. Secret treaties are abolished. Reservations to treaties by Luxembourg require legislative approval as well.4 Article  95ter (2) explicitly prohibits the Constitutional Court from reviewing Acts of Parliament, that approve treaties. There is no reference to international customary law in the current Constitution nor in the draft of the future Constitution, which is under consideration. Luxembourg’s experience as one of the EU founding members shows, if necessary that it is also feasible to participate successfully in the process of European integration for more than sixty years without any amendment of the Constitution referring explicitly to the EU or EU law and based on a constitutional provision that explicitly allows only temporary delegation of powers to international institutions. The absence of a Europe clause has never been considered as a lacuna endangering constitutional values or fundamental rights standards. The proposed amendments within the current revision procedure will bring about a commitment to European integration and an overdue adaptation of the Constitution to the legal reality.

III.  Constitutional Obstacles to EMU Integration The Grand Duchy’s legal system does not contain any of the typical constitutional obstacles to EU or EMU integration that can be found in the other Member States. Thus, Luxembourg’s EMU membership neither encountered any constitutional obstacles, nor did it raise any constitutional issues. No constitutional amendment had to be adopted in response to the euro crisis or to implement EMU related law. All measures have been approved and implemented, where necessary, by ordinary law. Most of them match the objectives of the domestic economic and budgetary policy.

A.  The Implementation of the Crisis Management Measures Within and Outside EU Law did not Reveal any Constitutional Obstacle Compared to the other EU Member States, Luxembourg was not obliged to adopt severe austerity measures. Measures adopted in 2010 for the period 2011-14 include notably: a 10 per cent reduction of funding to the budget (budget de fonctionnement) of all entities financed on the state’s budget, a decision to raise the ‘solidarity tax’ as well for revenues of natural and legal persons, the introduction of an additional ‘crisis tax’ of 0.8 per cent on all incomes exceeding the minimum 4 See ‘Approbation des traites in Marc Besch, Traité de légistique formelle, (Luxembourg, Conseil d’Etat du Grand-Duché de Luxembourg, 2005) 143.

424  Jörg Gerkrath social salary and the suspension of the automatic system of rising wages (index) in order to compensate losses due to inflation. Luxembourg even gained some ‘benefits’ from the euro crisis. First, the European Financial Stability Facility (EFSF) was established as a public limited liability company under the laws of the Grand Duchy of Luxembourg and, second, the EFSF as well as the European Stability Mechanism (ESM), which is an intergovernmental mechanism, are both located in Luxembourg City. Under the Constitution of Luxembourg, there are strictly no material limits to any enterprises of European integration inside or outside the existing treaty framework. The only formal limit foreseen by the Constitution is the requirement of a qualified majority within the Chambre if powers need to be transferred to international bodies. The national laws approving the participation in the rescue mechanisms (EFSM, EFSF, ESM) all passed by substantial majorities in the Chambre with the only exception of the Fiscal Compact that raised more debate but still passed by a comfortable majority of 46 out of 60 MPs. The debate focused on the question of whether it was at all necessary and opportune to introduce the ‘golden rule’ within the framework of constitutional law. The final choice to implement it through ordinary legislation was agreed by a wide cross-party majority. The constitutionality of the commitment under the ESM has not been questioned although objections to the laws approving the respective aspects related to the ESM and the prior amendment of Article 136 TFEU were voiced during the legislative procedure.5 The ratification procedure of the Treaty on Stability, Co-ordination, and Governance led to an interesting opinion of the Conseil d’Etat of 21 December 2012. It contains several references to decisions of the German Bundesverfassungsgericht and the French Conseil constitutionnel. The Conseil d’Etat placed the TSCG in the context of the previous integration steps and underlines its unprecedented legal nature: outside the EU legal order by its form but affecting EU law by its substance. The Conseil d’Etat concluded that the TSCG did not require any prior constitutional amendment but implied the transfer of attributions to an institution of international law (Article  49bis) and, thus, needs to be approved by a qualified majority (Articles  37 and 114, 2nd line). Accordingly, the TSCG was approved by a law of 29 March 2013 and implemented by the loi du 12 juillet 2014 relative à la coordination et à la gouvernance des finances publiques. The balanced budget rule was introduced by this ordinary statute into the domestic legal order. The law of 12 July 2014 also created the Conseil national des finances publiques (CNFP), which is an independent body tasked with monitoring the public finances of Luxembourg. The CNFP has been set up in the context of the overhaul of the EU economic and budgetary governance framework, mainly as a result of the initiatives known as Six-Pack, Two-Pack and Fiscal Compact. These reforms require the setting up of independent monitoring bodies at the national level as per Article 3 of the Treaty on Stability, Coordination and Governance. The primary objective of such independent bodies is to contribute to improved governance of public finances through regular public assessments. With the entry into force of this law, the Luxembourg fiscal framework has been reinforced to ensure healthy and sustainable public finances in the longer term, notably through the adherence to fiscal rules designed to rein in excessive deficit-making that could lead to negative debt dynamics

5 ‘La loi portant approbation de la décision du Conseil européen du 25 mars 2011 modifiant l’article 136 du traité sur le fonctionnement de l’Union européenne en ce qui concerne un mécanisme de stabilité pour les Etats membres dont la monnaie est l’euro; loi portant approbation du traité instituant le mécanisme européen de stabilité, signé le 2 février 2012 à Bruxelles; loi relative à la participation de l’Etat au mécanisme européen de stabilité.’ For the text of these legislative acts see Mémorial A-135, 5 July 2012, p 1706.

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B.  No Obstacles Exist to the (Further) Transfer of Powers in the Field of EMU Through Treaty Amendments Constitutional concepts that would limit further competence transfers to the EU, such as ‘core competences’, ‘non-transferable’ competences, constitutional identity or ‘sovereignty reserve’ are not familiar to the constitutional law of Luxembourg. The only hypothetical constitutional limit to the EMU membership is in the ‘Independence clause’ of Article 1 providing that Luxembourg is ‘an independent state’. Be it a matter of the past within the German Confederation or of the present within European integration, this proclamation of independence has, however, never prevented the Grand Duchy from participating in integration enterprises with a constitutional dimension. Moreover, at no time has the preservation of the independence of the state ever been discussed as a possible limit to Luxembourg’s participation in the European integration process. Its successive incorporation in the German Confederation (1815–66), the ‘Zollverein’ (1842–1918), the Belgo-Luxembourg Economic Union (from 1921) and the Benelux Union (from 1944) have, on the contrary, enabled Luxembourg to acquire the necessary experience to prepare for the legal implications of its EU membership.

C.  Scrutiny of Secondary Legislation, Especially Ultra Vires Doctrine The scrutiny of secondary legislation against the yardstick of constitutional requirements is made impossible in Luxembourg by means of the domestic rules of procedure. In the case of conflict of international or European engagement with the Constitution or legislative acts, the position of the domestic authorities is that national standards should be subject to revision or amendment before the international commitment is approved. Once approved, the respective international norms enjoy, in the pure monistic tradition, full primacy over rules of domestic law, even of constitutional value.6 This rule also applies to secondary EU legislation.7 All (civil and administrative) courts have accepted the full supremacy and direct effect of EU law in the very terms of the CJEU case law, to which they regularly refer. Acts of the Chambre approving treaties are explicitly excluded from the competence of the Constitutional Court (Article 95ter (2)). In Luxembourg, this is considered as a consequence of the primacy of treaties. Acts of the Chambre transposing or executing obligations deriving from secondary EU legislation are not explicitly excluded from the Constitutional Court’s jurisdiction. Until now, no such Act has, however, been submitted to the Constitutional Court as a preliminary question by an ordinary court. The opinion seems to be that the ‘immunity’ of Acts approving treaties also covers Acts implementing secondary EU legislation. There is no reported case where domestic courts would have directly scrutinised the legality of secondary EU legislation under rules of primary EU law. In case of doubt, Luxembourg would initiate an action for annulment and/or the domestic courts would bring the matter before the CJEU as a preliminary question on validity. Actions of annulment have nonetheless remained very exceptional. The database of the CJEU contains only eight cases in which the Grand Duchy

6 Cour d’appel, arrêt du 13 novembre 2001, n° 396/01V, Annales du droit luxembourgeois (Brussels, Bruylant, 2000) 456. Cour supérieure de justice (assemblée générale), arrêt du 5 décembre 2002, n° 337/02, Annales du droit luxembourgeois, (Brussels, Bruylant, 2003) 683. 7 Conseil d’Etat, Luxembourg, Pasicrisie lux, 21 November 1984) 26, 174.

426  Jörg Gerkrath sought to obtain the annulment of secondary EU legislation.8 Three of them concerned measures of the parliament regarding its seat or working place; two were directed against Commission decisions concerning the clearance of European Agricultural Guidance and Guarantee Fund (EAGGF) accounts; and two were directed against EU directives. Article 13 of the Constitution states that ‘no-one may be reassigned against his will to a court other than that designated by law. This includes the CJEU, which must be considered a ‘legal court’ in the meaning of the Constitution. This raises the critical question of whether the obligation of the Luxembourg court to make a reference for a preliminary ruling to the CJEU may, where appropriate, be sanctioned by domestic law. The only remedy available under Luxembourg law would then be to introduce an action for liability against the state.9 The statistics show, in general, that Luxembourg’s courts, which do not seem to experience any great difficulty in applying and interpreting the Union law, are among those sending the lowest number of referrals for a preliminary ruling to the CJEU.10 In the 55 years from 1963 to September 2018, Luxembourg courts introduced 92 preliminary rulings but only one on the validity of an act of EU law (in case C-114/96). There are unfortunately no reliable statistics available in Luxembourg concerning the number of cases in which the applicants have requested a preliminary ruling with regard to the validity of EU measures. Between 2000 and 2018, only two cases were identified after thorough research of the case law of the respective civil, social and administrative courts.

D.  Constitutional Feasibility of EMU Reform Proposals The 2017 EMU reform proposals submitted by the Commission included rules to enhance fiscal discipline and structural reforms, a European Monetary Fund, a European macroeconomic stabilisation mechanism for asymmetric economic shocks, a eurozone fiscal capacity, a Minister of Economy and Finance and a Fiscal backstop for the banking union that would not encounter any constitutional obstacles in Luxembourg. In practice, there is even no legal or political debate on potential obstacles in this field. Any reform tending to strengthen monetary stability and the overall functioning of the EMU seems to be considered positively in Luxembourg. Luxembourg’s constitutional law does not contain barriers to further EMU integration due to a Treaty change. True, the changing of EU Treaties calls for higher thresholds as regards their approval in parliament. However, so far, Treaty changes did not fail in the parliament. As regards the issue of a possible consultative referendum (Article 51 C) on a parliamentary act approving the ratification of a future treaty revision, it will depend on the intensity of the prospective Treaty amendment. The decision to hold such a consultative referendum is to be taken by the Chamber. The procedure was followed with success in 2004 regarding the treaty establishing a Constitution for Europe.

8 Cases C-230/81, ECLI:EU:C:1983:32, C-49/83, ECLI:EU:C:1984:268, C-108/83, ECLI:EU:C:1984:156, joint cases C-213/88 and C-39/89, ECLI:EU:C:1991:449, C-168/98, ECLI:EU:C:2000:598, C-158/00, ECLI:EU:C:2002:367 and C-176/09, ECLI:EU:C:2011:290. 9 Cf. Georges Ravarani, Rapport luxembourgeois au Colloque des Conseils d’État du Benelux, 10 October 2013, La transposition et la mise en œuvre des actes normatifs de l’Union européenne en droit national, www.conseil-État.public.lu/fr/ actualites/2013/10/C_Colloque_Benelux/index.html. 10 Cf. Jean-Paul Hoffmann, Les questions préjudicielles posées par les juridictions luxembourgeoises à la Cour de justice des Communautés européennes, Bulletin du Cercle du François Laurent (Luxembourg, Cercle François Laurent, 1998) 5; Manou Weirich, ‘Lapplication du droit communautaire au Grand-Duché de Luxembourg’ in Livre jubilaire de la Conférence Saint-Yves (Luxembourg, Saint-Paul, 1986) 982.

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IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law As there are currently no constitutional rules regarding EU membership in general, the reader will not be astonished to learn that there are also no constitutional rules on implementing EU law. Ordinary law, practice, and the internal rules of the Chambre des Députés deal with the matter. Luxembourg’s Constitution does not contain specific provisions concerning the rules governing the participation of the Chambre in EU affairs. Although Prime Minister Juncker suggested such an amendment in the course of the ratification procedure of the Lisbon Treaty in 2008, the Chambre rejected his proposal. It allegedly feared that it was not sufficiently staffed to face this responsibility. Thus, it is a simple ‘Memorandum on Cooperation between the Chambre and the Government of the Grand Duchy of Luxembourg in the Field of EU Policy’ annexed to the rules of procedure of the Chambre that governs the rights and duties of both institutions in this respect.11 Introduced in 2008, this memorandum contains in particular rules on the right of the Chambre to be informed on issues of European policy. The Lisbon Treaty recognises the right of national parliaments to contribute actively to the good functioning of the Union (Article 12 TEU). From the review of official documents of the European institutions regarding the transposition of directives into national law, the action of the Chambre in the political sphere of the EU is, thus, manifold. National parliaments are indeed involved by monitoring the activity of their respective national governments at the European level. In the Grand Duchy of Luxembourg, a parliamentary committee invites the ministers to its sessions before and after Council meetings. The Chambre contributes to the monitoring of respect of the subsidiarity principle laid down in the Treaty of Lisbon.12 Beyond these two main powers, the Chambre participates in interparliamentary cooperation within the Union. Inter-parliamentary meetings are held mainly within the framework of the Conference of Parliamentary Committees for Union Affairs of Parliaments of the European Union (COSAC) and the Conference of Presidents of Parliaments of the EU. Information on the analysis of EU documents is transmitted between national parliaments through the platform for EU Interparliamentary Exchange (IPEX) database. The control exercised by the Chambre over the government in the field of European affairs appears altogether rather modest compared to practices in the other Member States. In EU affairs as in domestic affairs, the Chambre monitors the government’s activities mostly by ordinary means of parliamentary questions, the scrutiny of government reports or, if necessary, by creating investigation committees on specific issues. The participation of the Chambre des Députés in European affairs has developed outside of the Constitution. Nevertheless, its ‘European function’ is no less real.13 Under the new Article 12 TEU, all national parliaments are, in effect, called upon to actively contribute to the good functioning of the Union, including ‘by seeing to it that the principle of subsidiarity is respected in

11 Aide-mémoire sur la coopération entre la Chambre des députés et le Gouvernement du Grand-Duché de Luxembourg en matière de politique européenne. 12 See Martin Gennart, Le contrôle parlementaire du principe de subsidiarité. Droit belge, néerlandais et luxembourgeois (Bruxelles, Larcier, 2013). 13 Cf. Martina Mayer, Die Europafunktion der nationalen Parlamente in der Europäischen Union (Tübingen, Mohr-Siebeck, 2012); Patrick Dumont, Astrid Spreitzer, ‘The Europeanization of Domestic Legislation in Luxembourg in S Brouard, O Costa and T König (eds) The Europeanization of Domestic Legislatures, The Empirical Implications of the Delors Myth in Nine Countries (New York, Springer, 2012) 131.

428  Jörg Gerkrath accordance with the procedures provided for in the Protocol on the application of the principles of subsidiarity and proportionality’. The scrutiny they exercise in this regard on compliance with subsidiarity criteria can be connected both to their role of controlling national executives and their participation in the exercise of European legislative power. Once again, the EU membership brings an expansion of the powers of a constitutional organ. The transposition and implementation of EU measures can be realised in Luxembourg by acts of parliament or Grand Ducal decrees. Doing so by Grand Ducal decrees is undeniably seen as a way to increase the speed of implementation, as well as the Grand Duchy’s ranking on the European Commission’s scoreboards. Every year, the government, as well as the Chambre, proudly announce the progress made in this respect. The matter is currently determined by an Enabling Act (loi dhabilitation) adopted by the Chambre in 1971.14 This Act, however, is limited in scope and has not proven an ‘appropriate and effective response’ to the problems encountered.15 The draft of the current constitutional amendment procedure foresees the addition of an article to the Constitution that will explicitly give the executive power the competence to transpose and implement EU measures by Grand Ducal decree. Parliamentary Acts will, thus, lose some of their importance in national legislation because of the perceived need to streamline the procedures for the transposition and implementation of secondary EU legislation. The inclusion of an additional article in the Constitution, as set out in the 2018 Draft and which obligates the Head of State to adopt all the necessary regulations for the application of legally binding acts of the EU, will eradicate a number of legal uncertainties in this area. According to the memorandum on cooperation between the Chambre des Députés and the government on European policy (in force since 1 July 2008), the government undertakes to submit annually, during the first semester, a report to the Chambre on the transposition of EU directives and application of the law of the EU. The 2018 report is the twelfth report on the transposition of EU directives. This is, as in previous editions, a public report. Over the last decade, Luxembourg has gradually managed to improve its results in the transposition of EU directives. The transposition deficit of Luxembourg, which already showed a significant downward trend, from 4 per cent (in May 2005) to 1.1 per cent (in May 2015), is currently turning around the 1 per cent goal set by the European Council in March 2007. All courts have accepted the full supremacy and direct effect of EU law in the very terms of the CJEU. In the field of fundamental rights, there is a long tradition of directly applying the provisions of the ECHR, and since the entry into force of the Lisbon treaty, the domestic courts frequently refer to the Charter of Fundamental Rights of the EU (CFR). In a recent case, the administrative court even proceeded to an ex officio application of the CFR.16

V.  Resulting Relationship between EMU Related Law and National Law One of the characteristics of Luxembourg’s domestic legal order lies in the fact that, unlike other European countries, it is founded on international law. Established as an independent state by 14 Law (as amended) of 9 August 1971 ‘on the execution and sanctioning of decisions and directives and the sanctioning of regulations of the European Communities in the economic, technical, agricultural, forestry, social and transport spheres’. 15 Cp. Paul Schmit, Rapport du Conseil d’État, Colloque des Conseils d’État du Benelux, 10 octobre 2013, La transposition et la mise en œuvre des actes normatifs de l’Union européenne en droit national, 5; Weirich, L’application du droit communautaire au Grand-Duché de Luxembourg, 965. 16 Judgment of 17.12.2015, 36893C.

Luxembourg  429 the Final Act of the Congress of Vienna of 9 June 1815, the Grand Duchy’s independence was confirmed by the Treaties of London of 19 April 1839 and 11 May 1867. Therefore, far from constituting a threat to national sovereignty, international law is understood in Luxembourg as a ‘vital guarantee of the existence and survival of the state’.17 Moreover, Luxembourg’s courts have had no difficulty in recognising the pre-eminence of international law and the primacy of Community Law, including in respect of a constitutional provision.18 This state of affairs also explains why it was not considered necessary to write a provision into the Constitution more explicitly authorising transfers of competences to the Union. Under Luxembourg law, the Constitution long ago ceased to be the only supreme law. There is now a set of norms ranked supra-legislative and designated by the term ‘higher law’. It is within the remit of the Conseil d’État to monitor the compliance of draft bills and draft regulations with the rules of the higher law. The amended Act of 12 July 1996, reforming the Conseil d’État, states in its Article 2(2), that if it considers a draft bill to be contrary to the Constitution, to international agreements and treaties, or to the general principles of law, the Conseil d’État shall state this in its Opinion. It shall do the same, if it considers a draft regulation to be contrary to a rule of higher law.

As part of the ongoing constitutional revision procedure, this ex ante check on compliance with ‘higher law’ will be included in Article 88 with the addition of ‘legally binding decisions of the European Union’. Article 96 is also planned to state that ‘courts shall only apply acts and regulations to the extent that they comply with rules of higher law’. The Constitution does not contain any explicit rule on the legal value of international or EU Law within the domestic legal order. Nonetheless, according to well-settled case law and the position of the Conseil d’État as well as Luxembourgish scholars, self-executing treaties enjoy full primacy with regard to the provisions of internal law, including the Constitution itself.19 The case law on this point was developed from the early 1950s when first the Cour de cassation (the highest civil court) and subsequently, the Conseil d’État (as the former highest administrative court) reversed the previously defended position that judicial control of the compliance of parliamentary acts with treaties was not possible because of the principle of separation of powers.20 According to the reference decision of the Conseil d’État in 1951, an international treaty incorporated into domestic law by a law of approval is law of superior essence having a higher origin than the will of an internal organ. It follows that in the case of conflict between the provisions of an international treaty and those of a subsequent national law, international law must prevail over national law.21

The wording of this decision is extensive, as the judgment states without distinction that an international norm prevails over the will of any national organ. It must be noted, however, that in 1956, the Chambre expressly rejected a governmental constitutional amendment bill, which provided that ‘[t]he rules of international law are part of the national legal order. They supersede all other law and national provisions’. According to this draft, primacy would have encompassed 17 Georges Wivenes, ‘Le droit européen et les constitutions nationales, Rapport luxembourgeois in Lord Slynn of Hadley and M Andenæs (eds), FIDE XX. Congress, (London, British Institute of International and Comparative Law, 2002) 267. 18 Cf. Pierre Pescatore, ‘Lautorité en droit interne, des traites internationaux’ (1962) 18 Pasicrisie luxembourgeoise, 97; Patrick Kinsch, ‘Le rôle du droit international dans l’ordre juridique luxembourgeois’ (2010) 36 Pasicrisie luxembourgeoise, 383. 19 Cf. Patrick Kinsch, op. cit. p 399. 20 Cour de cassation, arrêts des 8 juin 1950, Pasicrisie lux. 15, p 41, et 14 juillet 1954, Chambre des métiers c. Pagani, Pasicrisie lux. 16, p 151; JT 1954, p 694, note Pescatore, ‘L’autorité en droit interne, des traites internationaux’. 21 Conseil d’Etat, (Comité du contentieux), 28 juillet 1951, Dieudonné c/ Administration des contributions, Pas. lux. t. XV, p 263.

430  Jörg Gerkrath constitutional provisions. The Conseil d’État, however, implicitly accepted such a general primacy in an opinion of 26 May 1992 on the draft Act Approving the EU Treaty. It was considered that it should be borne in mind that under the rule of the hierarchy of legal norms, international law takes precedence before national law and, in the case of conflict, the courts shall dismiss domestic law in favour of the Treaty. As it is important to avoid a contradiction between national law and international law, the Conseil d’État insists that the related constitutional amendment take place within due time to prevent such a situation of incompatibility.

In the case of conflict of international or European engagement with the Constitution or legislative acts, national standards should be subject to amendment before the competent national authorities approve the international commitment. Once approved, the respective international norms enjoy, in the pure monistic tradition, full primacy over rules of domestic law, even of constitutional value.22 This rule also applies to secondary EU legislation.23

References M Besch, Traité de légistique formelle (Luxembourg, Conseil d’Etat du Grand-Duché de Luxembourg, 2005). A Bonn, La Constitution oubliée (Luxembourg, Imprimerie Centrale, 1968). P Dumont and A Spreitzer, ‘The Europeanization of Domestic Legislation in Luxembourg’ in S Brouard, O Costa and T König (eds), The Europeanization of Domestic Legislatures, The Empirical Implications of the Delors Myth in Nine Countries (New York, Springer, 2012). M Gennart, Le contrôle parlementaire du principe de subsidiarité. Droit belge, néerlandais et luxembourgeois (Bruxelles, Larcier, 2013). J Gerkrath (ed), La jurisprudence de la Cour Constitutionnelle du Luxembourg 1997–2007 (Luxembourg, Pasicrisie, 2008). J Gerkrath (ed), Les 20 ans de la Cour Constitutionnelle: trop jeune pour mourir? (Luxembourg, Pasicrisie, 2018). J-P Hoffmann, Les questions préjudicielles posées par les juridictions luxembourgeoises à la Cour de justice des Communautés européennes, Bulletin du Cercle du François Laurent (Luxembourg, Cercle François Laurent, 1998). P Kinsch, ‘Le rôle du droit international dans lordre juridique luxembourgeois’ (2010) 36 Pasicrisie luxembourgeoise, 383. M Mayer, Die Europafunktion der nationalen Parlamente in der Europäischen Union (Tübingen, Mohr-Siebeck, 2012). G Ravarani, Rapport luxembourgeois au Colloque des Conseils d’État du Benelux, Luxembourg, 10 October 2013, www.conseil-État.public.lu/fr/actualites/2013/10/C_Colloque_Benelux/index.html. P Pescatore, ‘Lautorité en droit interne, des traites internationaux’ (1962) 18 Pasicrisie luxembourgeoise, 97. P Schmit, Rapport du Conseil d’État, Colloque des Conseils d’État du Benelux, 10 octobre 2013, La transposition et la mise en œuvre des actes normatifs de l’Union européenne en droit national. M Weirich, ‘Lapplication du droit communautaire au Grand-Duché de Luxembourg’ in Livre jubilaire de la Conférence Saint-Yves (Luxembourg, Saint-Paul, 1986) 982. G Wivenes, ‘Le droit européen et les constitutions nationales, Rapport luxembourgeois’ in Lord Slynn of Hadley and M Andenæs (eds), FIDE XX. Congress (London, British Institute of International and Comparative Law, 2002) 267.

22 Cour d’appel, arrêt du 13 novembre 2001, n° 396/01 V, Annales du droit luxembourgeois, 2002, éd. Bruylant, p 456. Cour supérieure de justice (assemblée générale), arrêt du 5 décembre 2002, n° 337/02, Annales du droit luxembourgeois, 2003, éd. Bruylant, p 683. 23 Conseil d’Etat, 21 novembre 1984, Pasicrisie lux. 26, p 174.

Luxembourg  431

List of Relevant Legal Norms The Constitution (17 October 1868), amended text as of October 2017, http://legilux.public.lu/eli/etat/leg/ recueil/constitution/20171020 Proposal for the revision of the Constitution. Final report of the constitutional review commission, 6 June, 2018. Accessible on https://www.chd.lu, ‘La future constitution. Loi du 12 juillet 2014 relative à la coordination et à la gouvernance des finances publiques, Mémorial A 122, 2014, http://legilux.public.lu/eli/etat/leg/loi/2014/07/12/n2/jo

432

18 Hungary ATTILA VINCZE, PÁL SONNEVEND AND ANDRÁS JAKAB

Abstract: This chapter aims to outline the constitutional foundations of Hungary’s EMU membership against the background of EU law, including the feasibility of future fiscal and economic integration measures. First, the main characteristics of the Hungarian constitutional system are explained. In this context it is pointed out that the 2011 Basic Law, on which the current Hungarian system is mainly based, was accompanied by heavy international criticism. Additionally, Hungary’s constitutional culture and the prevailing methods of constitutional ­interpretation are analysed. Second, the constitutional foundations of EMU membership and closely related instruments are explored. The Basic Law makes no explicit mention of the monetary union or the common currency. It does, however, contain a provision which is a clear obstacle to introducing the euro as the official currency of Hungary. The role and involvement of the Hungarian parliament and government in the national legal system and in the field of national fiscal and economic policy are dealt with in detail. The impact of the EMU-related provisions and measures on the role of the Hungarian parliament are rather limited. The chapter also deals with the question of how the democratic legitimacy and accountability of fiscal and economic policy are ensured. The authors highlight the relationship between EU law and national law and make it clear that the supremacy and direct applicability of EU law is basically accepted. However, the Basic Law entails a restriction regarding the transfer of competencies. Further, the constitutional limits to further EMU integration are analysed. Another issue that is addressed is the nature and scope of the national legal and political instruments for the integration and implementation of EMU-related measures. Finally, the last part of the report gives an answer to the question of what constitutional law allows for, in relation to further integration of the EU and the eurozone. Irrespective of the fact that the Basic Law at present does not allow for the introduction of the euro, in general, it supports further integration as long as it does not lead to transferring core competences. Key words: Hungarian constitutional system, constitutional culture, checks and balances, relationship between EU law and Hungarian law, supremacy of EU law, supremacy of the Constitution, constitutional interpretation, compliance with EU standards, EMU membership, Member State with a derogation, EMU integration, EMU-related instruments, economic and fiscal integration, economic and fiscal policy, financial assistance instruments, crisis management, EMU reform, European integration.

434  Attila Vincze, Pál Sonnevend and András Jakab

I.  Main Characteristics of the National Constitutional System A.  The Constitutional System The current Hungarian constitutional system is mainly based on the Basic Law of 2011 (the Constitution). The adoption of the Basic Law was accompanied by heavy international criticism, and the parliamentary opposition (which did not participate in the procedure) widely considers the document as legal but illegitimate.1 This means that most legal experts agree that the adoption of the new Basic Law complied with the procedural rules that were valid at the time. However, it was what Mark Tushnet describes as constitutional hardball (violating informal rules of political culture without strictly speaking being illegal).2 Furthermore, the content of the new Constitution was not meant to unify or integrate the nation.3 Hungary is a unitary (as opposed to federal) state and the national parliament (Országgyűlés) in unicameral. Amending the Constitution requires a positive vote of two-thirds of all the members of the parliament, whereas ordinary statutes require a positive vote of half of the members present. There is an intermediary category in the hierarchy of laws, so called cardinal laws (sarkalatos törvények) which require a two-thirds majority of the members present (generic minimum presence requirement is 50 per cent of members). There is no hierarchy within the Basic Law. There are also no principles which would require a higher quorum in parliament or which would be unamendable. The Constitutional Court is the ultimate guardian of the legality of acts above the level of local governments. EU law – as a rule – is not covered by the Constitutional Court’s legal standard of review (ie scope of judicial review) and objects of review. Since 2012, the Constitutional Court has had the competence to review judgments of ordinary courts (with rules of locus standi similar to the German Verfassungsbeschwerde). The ordinary courts system has four tiers (local courts, county courts, appellate courts, Kúria). The constitutional developments of the last few years in Hungary have been marked by three crisis symptoms: permanent constitution-making, a gradual deterioration of the guarantees of fundamental rights, and a lack of effective checks and balances.4 Between the 2010 elections and the entry into force of the Basic Law on 1 January 2012, the 1989 Constitution was amended no less than eight times. The Basic Law, which is the product of unilateral constitution-making by the governing parties, went through five amendments by the very same parties in less than two years. The amendments served everyday political needs either by reacting to Constitutional Court decisions or by neutralising possible constitutional concerns relating to specific legislative projects. Thus the constitution of Hungary has lacked the stability and reliability that is necessary for a constitution to fulfil its role as the basic law of the land.5

1 For more details on these debates, see Pál Sonnevend, András Jakab, Lóránd Csink, ‘The Constitution as an Instrument of Everyday Party Politics: The Basic Law of Hungary’ in A von Bogdandy, P Sonnevend (eds), Constitutional Crisis in the European Constitutional Area (Oxford/Portland, Hart Publishing, 2015), 33. 2 Mark Tushnet, ‘Constitutional Hardball’ (2004) 37 The John Marshall Law Review, 523. 3 Gábor Attila Tóth (ed), Constitution for a Disunited Nation. On Hungary’s 2011 Fundamental Law (Budapest/ New York, Central European University Press, 2012). 4 András Jakab, György Gajduschek, ‘The Rule of Law, Legal Consciousness and Compliance’ in IG Tóth (ed), Social Report 2019 (Budapest, TARKI, 2019), 277. 5 András Jakab, ‘What is Wrong with the Hungarian Legal System and How to Fix it’ (2018) Max Planck Institute for Comparative Public Law & International Law (MPIL) Research Paper No 13/2018, www.ssrn.com/abstract=3213378.

Hungary  435

B.  Assessment of Recent Developments This is not to say that guarantees of fundamental rights in the Basic Law are in general missing or insufficient. The 2011 Basic Law was mainly in line with mainstream European constitutionalism.6 Yet the specific exceptions to fundamental rights led to the gradual deterioration of the level of fundamental rights protection. Freedom of religion relating to the recognition of churches, free speech relating to the protection of personality rights and political campaigning, and the right to property in relation to retroactive taxation are all examples of fundamental rights where the previous level of protection was lowered, sometimes below the obligatory minimum of the European Convention on Human Rights. This negative process is a result of a lack of effective checks and balances. Again, we do not argue that the judiciary is no longer independent in Hungary. In fact, in spite of the problematic organisational changes in the administration of courts, the independence of the judiciary is the area where negative changes (ie, the forced retirement of judges7 and the reallocation of cases) could mostly be reversed.8 Yet the independence of the Hungarian Constitutional Court is seriously impaired.9 Limitations to the competence of the Court, changes to the composition and the election of judges, and, most of all, the permanent constitution-making, made it extraordinarily difficult for the Court to maintain the general European ideals of constitutionalism.10 It does not seem that there are ideological motives behind the changes to the constitutional system. The different emerging ideological elements are too contradictory and too eclectic to be qualified as realising any specific ideology (liberal catalogue of fundamental rights with ad hoc exceptions, conservative preamble, anti-Marxist rhetoric, parliamentary sovereignty in justifying the curtailment of the competences of the Constitutional Court versus limiting the budgetary powers of the parliament by the veto power of the Budget Council). The constitution-making was most likely motivated simply by short-term political party interests, and pragmatism was probably stronger than any of the ideological components. The Constitution was basically considered as an instrument in the political struggle for power. ‘Winner takes all’ and the Schmittian ‘us versus them’ (where these terms are not defined by principles but by personal connections) are most characteristic of this mentality. The government is basically using the Basic Law to cement its own position and policies.11 This also means that reasoning is ineffective in healing Hungary’s constitutional problems. Where there are no principles behind the changes, or rather where the principles are only motivated by political party interests and also change from time to time, the old wisdom becomes most evident: power can only be controlled by power. The governing parties in Hungary only

6 András Jakab, Pál Sonnevend, ‘Continuity with Deficiencies: The New Basic Law of Hungary’ (2013) 9 European Constitutional Law Review 102. 7 Attila Vincze, ‘The ECJ as Guardian of the Hungarian Constitution’ (2013) 19 European Public Law, 489. 8 At the time of writing this chapter, the government with its newly re-acquired two-thirds majority intends to ­reorganise the ordinary court system, which raises concerns about the independence of judges. 9 Zoltán Szente, ‘The Political Orientation of the Members of the Hungarian Constitutional Court between 2010 and 2014’ (2016) 1 Constitutional Studies 123. 10 Attila Vincze, ‘Wrestling with Constitutionalism: The Supermajority and the Hungarian Constitutional Court’ (2014) 8 ICL Journal 86. 11 See David Landau, ‘Abusive Constitutionalism’ (2013) 47 UC Davis Law Review 189 referring explicitly to the Hungarian Basic Law of 2011 as an example of abusive constitutionalism. On the legal self-restraining and on the symbolic integrating functions of constitutions (none of them followed by the drafters of the Basic Law) see András Jakab, ‘The Two Functions of a Constitution’ in E Bos, K Pócza (eds), Verfassungsgebung in konsolidierten Demokratien: Neubeginn oder Verfall eines Systems? (Baden-Baden, Nomos, 2014) 78.

436  Attila Vincze, Pál Sonnevend and András Jakab backtracked on their legislative or constitutional policies if European institutions intervened. Even then, the possible economic implications looked more threatening than any denouncements concerning breaches of certain European values. The lesson is that the lack of domestic checks and balances can partly be compensated for by actions of the European institutions, yet these institutions can only address a small portion of the problems that arise.12 That being said, we turn to the stability of the Basic Law. Naturally, we cannot predict with certainty what is going to happen in Hungary. However, there are empirical studies on cases similar to the present Hungarian one. According to these studies, the longevity of constitutions depends on three factors: flexibility, an integrating character, and a sufficiently detailed constitution.13 The Basic Law is sufficiently (or perhaps even too) flexible, as Article S(2) only requires, similarly to the previous Constitution, a two-thirds majority to pass constitutional amendments. The text of the Basic Law cannot be said to be insufficiently detailed, either (the Basic Law in its original 2011 form was some 15 per cent longer than the 1989 Constitution that it replaced, and is now after a series of amendments almost 50 per cent longer than the 1989 Constitution). It is, in turn, questionable whether or not the Basic Law has an integrating character.14 Currently, one of the openly purported main goals of the opposition is to adopt a new constitution. Should the opposition come to power (even if not a constitution-making majority in the parliament) it would be difficult to stop that project. Many constitutions in history were adopted illegally (quite a few of them were democratic ones),15 and according to what we know about the life prospects of constitutions in general there is a chance that Hungary’s 2011 Basic Law of will end in a similarly dramatic way. We, however, still hope that the mistakes of the Basic Law which drove Hungary further from the European constitutional mainstream can be corrected in a legal and peaceful way.

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  The EU Membership Clause Article E of the Basic Law, the integration clause of the Basic Law, reflects the understanding that the principle of supremacy of EU law is necessarily bi-dimensional. Its practical effect depends on whether the national constitutional order accepts this principle.16 What is more, the language of Article E of the Basic Law – while opening the Hungarian legal order for the application of EU law – contains express and far-reaching reservations to the supremacy of EU law. By this, the 12 András Jakab, Dimitry Kochenov (eds), The Enforcement of EU Law and Values. Ensuring Member States’ Compliance (Oxford, Oxford University Press, 2017). 13 Zachary Elkins, Tom Ginsburg, James Melton, The Endurance of National Constitutions (Cambridge, Cambridge University Press, 2009) 65. 14 For a more general outlook on this problem, see András Jakab, ‘On the Legitimacy of a New Constitution. Remarks on the Occasion of the New Hungarian Basic Law of 2011’ in MA Jovanović, D Pavićević (eds), Crisis and Quality of Democracy in Eastern Europe (The Hague, Eleven, 2012) 61. 15 Elkins, Ginsburg, James, The Endurance (2009) 225 with statistical data on ‘extra constitutional leadership change’ in the context of constitution making. An illegal adoption, however, makes the life prospects of any new constitution shorter as well, see ibid 132. 16 Joseph Weiler, ‘The Community System: The Dual Character of Supranationalism’ in FG Jacobs (ed), Yearbook of European Law (Oxford, Oxford University Press, 1981) 275.

Hungary  437 language of the Basic Law directly challenges the autonomy of the EU legal order – a phenomenon not completely unknown in other EU Member States, albeit more as a result of the case law of the respective constitutional courts. The language of Article E(2) contains three limitations known from the practice of constitutional courts in Europe.17 The first limitation is the protection of fundamental rights as guaranteed by the Hungarian Constitution. The second limitation addresses the scope of the competencies transferred and the limits of the exercise of powers by the EU. The third limitation was first identified by the Constitutional Court in its Decision 22/2016 (XII. 5.), however without an express textual basis in the Basic Law,18 and later included in the language of Article E(2) by the Seventh Amendment to the Basic Law. As regards the protection of fundamental rights, Article E(2) of the Basic Law stipulates that only ‘competencies resulting from the Basic Law’ may be exercised together with the other Member States, or by the EU institutions. Undoubtedly, this is a nemo plus iuris rule. It provides that the EU exercise of powers is subject to the same constitutional barriers as are applicable to Hungary and its state organs. Since the latter lack the power to violate fundamental rights of the individuals, no such power can be transferred to the EU.19 In relation to the scope of competencies transferred to the EU, Article E(2) of the Basic Law provides that the EU may exercise only powers that are necessary to fulfil the rights and obligations resulting from the founding treaties. This language makes it clear that Article E(2) does not legitimise sovereign acts of the EU that are not founded on a competence resulting from the treaties. Ultra vires acts, therefore, are not covered by the integration clause. The seventh amendment to the Basic Law entered into force on 29 June 201820 and added further reservations to the existing ones. Accordingly, a new sentence is included in Article E(2) which provides as follows: Exercise of competences under this paragraph shall comply with the fundamental rights and freedoms provided for in the Fundamental Law and shall not limit the inalienable right of Hungary to determine its territorial unity, population, form of government [államforma] and state structure [állami berendezkedés].

The seventh amendment also included a reference in the Preamble of the Basic Law to the constitutional identity of Hungary. According to this new language, ‘We hold that the protection of our identity rooted in our historic constitution is a fundamental obligation of the State’. This is reinforced also in the operative part of the Basic Law, as a new Article R(4) should be included stating that ‘[t]he protection of the constitutional identity of Hungary is an obligation of all organs of the state’.

17 See Barna Berke, ‘Közösségi jog és a tagállamok jogrendszere: vonzások és taszítások’ (1995) 4 Magyar Jog 240; Barna Berke, ‘Európai Unió, közösségi jog és nemzeti alkotmánybíráskodás’ (1996) 1–2 Jogállam. Budapesti jogi és politikai szemle 7. 18 For an English translation by the Constitutional Court see www.hunconcourt.hu/uploads/sites/3/2017/11/en_22_ 2016.pdf. 19 For a deeper analysis see: Pál Sonnevend, ‘§ 25 – Offene Staatlichkeit: Ungarn’ in A von Bogdandy, PC Villalón, PM Huber (eds), Ius Publicum Europaeum: Band II: Offene Staatlichkeit – Wissenschaft vom Verfassungsrecht (Heidelberg, CF Müller Verlag, 2008) 393 et seq. 20 For a consolidated version of the Basic Law see www.kormany.hu/download/f/3e/61000/TheFundamentalLawof Hungary_20180629_FIN.pdf.

438  Attila Vincze, Pál Sonnevend and András Jakab

B.  Scholarly Debate and Jurisprudence on the Membership Clause As regards the reservation relating to human rights, it was argued21 that measures affecting Hungarian subjects based on EU law need not conform to the same standards as acts of the Hungarian state. Article E(1) of the Basic Law sets the aim for the Republic of Hungary to participate in the creation of European unity.22 Even if this language does not refer expressly to the EU, it clearly enshrines participation in the EU as a state goal, since the EU is the most important institutionalised form creating unity in Europe. It is submitted that Article E(1) of the Basic Law must play a role in the interpretation of the provisions of the Basic Law, especially of Article I(3) pertaining to the limitations of fundamental rights. In other words, the specificities of the EU legal order must be taken into account if, as a result of the application of laws of the EU, it comes to a limitation of a fundamental right enshrined in the Constitution. Clearly, Article E(1) of the Basic Law does not annul the guarantees of the Basic Law, especially in view of the reservation in Article E(2) of the Basic Law referred to above. The question is, to what extent the test applicable to limitations of fundamental rights based on EU law could be different from the general standards. Article I(3) of the Basic Law prohibits, inter alia, limitation of the essential content of fundamental rights. It was proposed that, based on Article E(1) of the Basic Law, the objective and absolute dimension of Article I(3) of the Basic Law are relevant to the fundamental rights limitations on the basis of EU law. Accordingly, EU law need not conform to the general constitutional requirements but shall, as a system, provide a certain minimum protection for fundamental rights. With this interpretation, the Hungarian Basic Law would be in line with the jurisprudence of the German Bundesverfassungsgericht and the Italian Corte Costituzionale on the limits of supremacy of EU law, and also with the approach of the European Court of Human Rights as reflected in the Bosphorus judgment.23 Decision 22/2016 (XII. 5.) seems to embrace this interpretation. The operative part of the Decision seems to suggest that EU law must conform with the fundamental rights of the Basic Law to the fullest. It declares that The Constitutional Court may examine upon a relevant motion – in the course of exercising its competences – whether the joint exercise of powers under Article E) (2) of the Basic Law would violate human dignity, another fundamental right, the sovereignty of Hungary or its identity based on the country’s historical constitution.

Nevertheless the reasons of the Decisions make it clear that EU law only needs to respect the essential content of the fundamental rights of the Basic Law, as it states that ‘the Constitutional Court … must ensure that the joint exercising of competences under Article E) (2) of the Fundamental Law would not result in violating human dignity or the essential content of fundamental rights’.24 Surprisingly, the Court offers no specific reasons for limiting the protection to the essential content of fundamental rights except for referring to the Solange II judgment of the Bundesverfassungsgericht.25 21 Pál Sonnevend, ‘Alapvető jogaink a csatlakozás után’ (2003) 2 Fundamentum 27f; Péter Csuhány, Pál Sonnevend, ‘2/A. §’ in A Jakab (ed), Az Alkotmány kommentárja, 2nd edn (Budapest, Századvég Kiadó, 2009) 238 et seq. 22 Art E(1): ‘The Republic of Hungary shall take part in establishing a European unity in order to achieve freedom, well-being and security for the peoples of Europe.’ 23 Bosphorus v Ireland (App no 45036/98) Judgment of 30 June 2005 (ECLI:CE:ECHR:2005:0630JUD004503698). 24 Decision 22/2016 (XII. 5) AB para [49]. 25 Ibid.

Hungary  439 The Seventh Amendment to the Basic Law seems to end this self-restraint as it provides in clear terms that the exercise of competences by the EU must ‘comply with the fundamental rights and freedoms provided for in the Basic Law’. It is questionable, whether in view of this plain language the Constitutional Court could restrict the protection of fundamentaé rights against EU acts to the essential content of fundamental rights. This may, eventually, lead to an open conflict between EU law and the Basic Law. The same can be said of the ultra vires reservation in Article E(2) of the Basic Law. In this regard, Decision 22/2016 (XII. 5.) again seems to exercise some self-restraint. It first states that the Hungarian parliament and government have different procedural means under EU law to prevent the adoption of such ultra vires acts.26 Then it goes on to declare that ‘the joint exercising of a competence shall not violate Hungary’s sovereignty (sovereignty control)’.27 How sovereignty should be understood in this context is somewhat unclear. It can mean the statehood of Hungary, as the decision states that As long as Article B) of the Fundamental Law contains the principle of independent and sovereign ­statehood and indicates the people as the source of public power, these provisions shall not be emptied out by the Union-clause in Article E).28

Sovereignty, however, can also be construed in this context as popular sovereignty. Thus, it can be understood as the requirement of democratic legitimacy vis-à-vis EU acts in the fashion of the Maastricht judgment of the Bundesverfassungsgericht. This interpretation is supported by the statement that ‘the joint exercising of competences shall not result in depriving the people of the possibility of possessing the ultimate chance to control the exercising of public power’.29 This would mean that sovereignty control is just another name for the well-known ultra vires reservation. At the moment, the contours of the sovereignty control are vague, at best. As opposed to the human rights and ultra vires reservations, constitutional identity is a new phenomenon in Hungarian law. It was first stipulated in Decision 22/2016 (XII. 5.) and is now codified by the above-cited provisions of the seventh amendment to the Basic Law. Here, again, the contours are rather vague. Decision 22/2016 (XII. 5.) merely states that the Constitutional Court ‘unfolds the content of this concept from case to case, on the basis of the whole Fundamental Law and certain provisions thereof, in accordance with the National Avowal and the achievements of our historical constitution’. Thus, there is a close link between constitutional identity and the historic constitution, which may be further reinforced by the seventh amendment to the Basic Law declaring the constitutional identity of Hungary to be rooted in the historic constitutions. There is, however, a strong consensus in academia that the historic constitution of Hungary is an empty shell, the content of which cannot be reconstructed. Thus, what remains at the moment is an exemplificatory reference in Decision 22/2016 (XII. 5.) to certain values as part of constitutional identity. These are freedoms, the division of powers, republic as the form of government, respect of autonomies under public law, the freedom of religion, exercising lawful authority, parliamentarism, the equality of rights, acknowledging judicial power, the protection of the nationalities living with us.

How constitutional identity, thus understood, could be a challenge to EU membership remains to be seen.



26 Decision

22/2016 (XII. 5) AB para [50]. para [54]. 28 Ibid para [59]. 29 Ibid para [60]. 27 Ibid

440  Attila Vincze, Pál Sonnevend and András Jakab

C.  Treaty Amendments Any transfer of competences to the EU requires a treaty in the sense of Article E(2) of the Basic Law. Under that provision, such treaties must be approved by an act of parliament adopted with two-thirds of the vote of all members of parliament. This majority is also the threshold for constitutional amendments, which provides a high legitimacy for the founding treaties and their amendments. It cannot be inferred, however, that amendments to the founding treaties so approved could tacitly amend the Basic Law or deviate from it. All constitutional reservations described above are applicable to treaty amendments as well. High courts have not yet had an opportunity to influence the government’s preferences with regard to economic and fiscal integration, and it is unlikely that this situation will change in the current constitutional setting.

D.  Future EMU Membership The Basic Law does not explicitly mention the monetary union or the euro. It does, however, stipulate in unequivocal terms in Article K that ‘the official currency of Hungary shall be the forint’. This provision is a clear obstacle in the way of introducing the euro as the official currency of Hungary. Arguably, this is not in clear violation of EU law as long as Hungary does not fulfil all convergence criteria, and thus has a derogation.30

E.  EMU Crisis Management Measures i.  Constitutional Amendments and their Effects on the Relationship between National and European Constitutional Law In 2011 Hungary’s new Constitution, the Basic Law, was enacted. Often labelled retrograde and illiberal, it caused turbulence between the EU and Hungary (see above). Regarding the relationship between national and European constitutional law, it rather brought consolidation than unpleasant surprises. As it was shown, the wording of the Basic Law regarding EU membership and obligations underwent only a few modifications.31 The provision governing the relationship between international and domestic law even improved and clearly recognised the international rule of pacta sunt servanda. According to Article K of the Basic Law, the official currency is the forint, which does not allow joining the EMU and consequently the ESM, but does not exclude Hungary from joining the Fiscal Compact. According to Article N of the Basic Law, Hungary has to pursue the principle of a balanced, transparent and sustainable budget. The importance of this provision in time of unsustainable budgets cannot to be overestimated, and was enacted to tackle the financial imbalance of

30 Cf the 2018 Convergence Report, according to which Hungary does not fulfil the price stability and exchange rate criteria, and legislation in Hungary is not fully compatible with the Treaty. 31 Attila Vincze, Nóra Chronowski, Magyar alkotmányosság az európai integrációban, 3rd edn (Budapest, HVG-ORAC, 2018), 313–19, cf further the dissenting opinion of Justice Stumpf, Decision 22/2012 (V. 11.) AB.

Hungary  441 Hungary. The full extent of this provision is set out in the fiscal constitution (Articles 36–44), introducing a debt ceiling of 50 per cent of the GDP and the Budgetary Council. By and large, at least at constitutional level, one may speak of convergence between European and national law.

ii.  Nature and Scope of the National Legal and Political Instruments for the Integration and Implementation of EMU Related Measures The impact of EMU-related measures is rather limited in Hungary, due to its status as a Member State with a derogation, according to Article 139 TFEU. Hungary did not opt out from the EMU, like Denmark or the United Kingdom. Thus, it is legally obliged to adopt the common currency, and to transfer its monetary policy to the EU at some point. From this Janus-headed membership, partly in and partly out of the EMU, it follows that some EMU instruments are applicable only to a limited extent to Hungary. However, Hungary is not part of the ESM and has only limited obligations under the Stability and Growth Pact. a.  EU Instruments 1.  Stability and Growth Pact Not being a full member of the EMU, Hungary is obliged to report periodically on its budget and debt situation, and for this to be assessed by the Commission and to take the recommendations of the Council into account. The naming, blaming and shaming procedure of the Stability and Growth Pact did not lead to the expected shaming, and did not prevent the socialist governments in Hungary between 2002 and 2008 from borrowing more than was financially sound. The U-turn in Hungarian financial policy in 2008 and 2009 was not due to a newfound respect for the obligations resulting from the Stability and Growth Pact. Instead, it was prompted by the conditionality attached to international financial assistance provided by the EU and the IMF. Since 2010, the right-wing Fidesz government have been undertaking unorthodox and sometimes legally questionable measures to get a grip of the miserable budgetary situation (nationalisation of private pension savings, or special levies and taxes). The books were not being balanced in order to comply with European legal obligations, but rather in order to recover political manoeuvrability and leverage. As the financial crisis broke, there were two narratives. First, the European rules of financial stability, especially the Stability and Growth Pact, completely failed to prevent the EU Member States, such as the earlier socialist government in Hungary, from incurring large budget deficits, and the Commission was unable or not ready to effectively prevent irresponsible spending. The second, more political narrative was that the left-leaning President of the Commission at the time (Barroso) helped the socialist Hungarian government. In particular, as a political favour, the Commission did not push the question of financial instability too hard, for example by publishing official EU statistics regarding the actual debt before the 2006 Hungarian elections. The inability or unwillingness of the Commission to counter the financially irresponsible spending of the earlier socialist governments made it clear that European budgetary rules are only soft ones. Hence, pursuing a more hawkish fiscal policy and fulfilling the EU budgetary standards (at least regarding the annual budget), which is one of the economic objectives of the Orbán government, is rather a by-product of a political aim to recover international manoeuvrability, and not the result of better European regulation.

442  Attila Vincze, Pál Sonnevend and András Jakab The budgetary forecasts, the medium-term budgetary objective, the European Semester etc are rather perceived as necessary steps, ‘boxes to tick’, and much less as tools for better policymaking. 2.  Euro Plus Pact and the Europe 2020 Strategy Hungary did not sign the Euro Plus pact, but secured the option of signing up at a later date. By and large, the economic and fiscal policy of Hungary aims to achieve similar objectives as the Euro Plus pact without being a member of it. The Europe 2020 Strategy has no meaningful effect in Hungary. In 2010, the right-wing government decided to pursue its own unorthodox economic policy, which in effect produced growth in GDP and employment, fiscal balance, low inflation, and low interest rates. However, these outputs were achieved mainly by EU and/or publicly funded projects. Private investment, productivity and innovation remained low. Resource efficiency, green economy, knowledgebased economy, social and territorial cohesion are – contrary to the Europe 2020 Strategy – not the most important policy objectives. 3.  ECB Monetary Policy Measures As Hungary did not transfer its monetary powers to the EU, the ECB measures had only an indirect impact in Hungary. b.  European Integration Outside the EU Legal Order 1.  Emergency Funding – EFSM, EFSF and ESM As Hungary is not a full member of the EMU it did not take part in the early emergency measures. Hungary was only a recipient of financial assistance instruments according to Article 139 (2) TFEU (see below). Hungary is not a party to the ESM Treaty, and will only become one once derogations are abrogated, according to Article 140(2) TFEU. 2.  Treaty on Stability, Coordination, and Governance (Fiscal Compact) The Fiscal Compact was subject to constitutional review by the Constitutional Court.32 The core question was which constitutional provision is applicable to the Fiscal Compact. Is the Fiscal Compact an ordinary treaty that is to be concluded under Article Q of the Basic Law (and requiring a simple majority in the parliament), or by application of the Europe clause (requiring a two-thirds super majority in the parliament)? The Constitutional Court pointed out that the Europe clause enabling the accession to the EU cannot be interpreted only in the context of the accession, but it is also the foundation of any further transfer of further competences specified in the Basic Law. According to the Constitutional Court, the Fiscal Compact ‘provides for a new obligation for the states parties regarding their budget [and] widens the scope of application of certain articles’. These circumstances led to the Conclusion that the Fiscal Compact was to be considered as a treaty transferring powers to the EU, and, hence, as a founding treaty requiring a two-thirds majority in order to be ratified. The necessary substantive changes were not subject to the constitutional review. Most of the constitutional safeguards required by Article 3(2) of the Fiscal Compact had been already

32 Decision

22/2012 (V. 11.) AB.

Hungary  443 introduced at the constitutional level, such as an explicit constitutional rule requiring balanced budget (Article N and Article 37 of the Basic Law) and the Budget Council (Article 44 of the Basic Law). 3.  Bilateral Loans as Financial Assistance Instruments When the liquidity crisis hit the EU in 2008 and became a full-scale economic crisis, Hungary was not a full member of the EMU, due to its desperate budgetary situation. Hence, Hungary could make use of three possibilities opened up by Article 139(2) TFEU. These included: (a) a concerted approach to or within any other international organisations to which Member States may have recourse; (b) measures needed to avoid deflection of trade where the State which is in difficulties maintains or reintroduces quantitative restrictions against third countries; or (c) the granting of limited credits by other Member States, subject to their agreement.

Article 139(2)(b) proved to be of no practical importance at all. However, Hungary received international financial assistance amounting to $25 billion due to an interplay between Article 139(2)(a) and (c). This assistance was partially granted by the IMF in the form of a 17-month stand-by arrangement, partially by the EU (6.5 billion euros) and partially by the World Bank ($1.3 billion). The EU granted this assistance in accordance with Council Regulation (EC) No 332/2002,33 which was modified during the financial crisis in 200834 and in 2009.35 According to this, EU Member States that have not adopted the euro and are experiencing, or are seriously threatened with, difficulties in their balance of current payments36 or capital movements37 may benefit from EU financial assistance. The financial mechanism is very similar to the credits of the European Investment Bank. According to the Council Regulation 332/2002, the EU grants finance assistance by using ‘its creditworthiness to borrow resources that will be placed at the disposal of the Member States concerned in the form of loans’ (cf Recital 5). The EU Member States profit either from the lower credit costs or from the mere granting of a credit, which they possibly could not obtain otherwise on the financial markets. This was a kind of bail-out mechanism of a much smaller scale than the EFSF and the ESM (around 50 billion euros was made available), and receiving much lesser attention than the tragedy of the countries in southern Europe that received such assistance. There is a contradiction between the practice and the black-letter of the law, similar in nature to the conflict between the EFSF and the ESM and the TFEU. The main problems regarding the EFSF and the ESM result from the clear no bail-out rule stipulated in Article 125 TFEU. In the case of Hungary (and the other non-eurozone EU Member States), the problem is rather that the TFEU (and earlier the TEC) enabled the grant of limited bilateral credits. These were credits from other EU Member States being subject to the bilateral agreement between the countries in question. The harsh reality is, however, that these were not granted by other EU Member States but by the EU itself. That was the reason why Article 308 TEC (now Article 352 TFEU) and not Article 119(2) TEC (now Article 143 TFEU) served as the legal basis for establishing this lending

33 Council Regulation (EC) No 332/2002. 34 Council Regulation (EC) No 1360/2008. 35 Council Regulation (EC) No 431/2009. 36 The current account shows flows of goods, services, primary income, and secondary income between residents and non-residents. For clarifications see IMF, Balance of Payments Manual 2.12–2.19. 37 IMF, Balance of Payments Manual 2.16 ‘The capital account shows credit and debit entries for non-produced non-financial assets and capital transfers between residents and non-residents.’

444  Attila Vincze, Pál Sonnevend and András Jakab facility. Making use of this ancillary legal basis is only justified where no other provision of the treaty gives the EC/EU institutions the necessary power to adopt the measure in question38 and the Treaties do not prohibit such measures.39 Article 119(2)(c) TEC would have been the proper legal basis allowing only bilateral financial assistance (even if coordinated by different Member States) which seems to have been circumvented by relying on Article 308 TEC. Interestingly, Article 143 TFEU is one of the oldest provisions of the founding Treaties. Its predecessor was Article 108 of the EEC Treaty, which had been drafted in the Bretton Woods era, in a system of fixed exchange rates. This system was guarded by the IMF in order to secure international liquidity by granting loans for fund members if they were short of reserves. Despite two oil crises, many recessions and the establishing of a new common currency, the Member States, as masters of the Treaties, did not find it necessary to empower the EC/EU to establish a financial assistance mechanism, or to reform this Article at all. Hence, it is very implausible that Article 143 TFEU would have allowed the granting of financial assistance directly from EU resources.

III.  Constitutional Obstacles to EMU Integration There was no need and no occasion to challenge the mechanisms intended to tackle the euro area debt crisis. Regarding the Fiscal Compact, only the proper legal basis was a matter of debate.40

A.  Tensions between EMU Related Measures and the National (Constitutional) Legal Order Since 2011 and the enacting of the new Hungarian Basic Law, a number of conflicts and collusions with the European constitutional order have materialised.41 They most recently led to the adoption of the Sargentini report.42 As Hungary is not a full member of the EMU, there are, however, rather few tensions directly related to the EMU. One of the open conflicts is surely Article K of the Basic Law. It prescribes that the official currency of Hungary is the forint, and requires a constitutional amendment of the Parliament to abolish or amend this provision. A further conflict resulted from the independence of the central bank, which is not guaranteed by the Constitution. Thus, governments (left- and right-wing alike) were keen to find the ‘proper chap’ for the job being ready to support the government’s economic policy. For this reason the law on the central bank was supposed to be amended in 2004 by the then socialistliberal government of Gyurcsány43 and in 2011 by the right-wing government of Orbán.44

38 Judgment of the Court of 26 March 1987, Case 45/86 Commission v Council, para 13 (ECLI:EU:C:1987:163). 39 Cf Koen Lenaerts, Piet van Nuffel, Constitutional Law of the European Union (London, Sweet & Maxwell, 2005), paras 5.013–5.017. 40 Decision 22/2016. (XII. 5.) AB. 41 Attila Vincze, ‘Ungarns euroatlantische Integration’ in H Küpper, Z K Lengyel, H Scheuringer (eds), Ungarn 1989–2014 Eine Bilanz nach 25 Jahren (Regensburg, Friedrich Pustet, 2015), 37. 42 Report on a proposal calling on the Council to determine, pursuant to Article 7(1) of the Treaty on European Union, the existence of a clear risk of a serious breach by Hungary of the values on which the Union is founded (2017/2131(INL)). 43 Act CXXVI/2004 on the modification of Act LVIII/2001 on the Hungarian National Bank. 44 Act CCVIII/2011 on the Hungarian National Bank.

Hungary  445 In both cases a reorganisation of the central bank was attempted by nominating new members to the monetary council – the main decision-making body of the bank. In both cases, the ECB had to step in.45 Considering these events, including a provision guaranteeing the independence of the central bank would be wise, even though EU law does not require it to be of constitutional rank. A further conflict arose from taxation. In order to tackle the consequences of the financial crisis, the government enacted special levies and taxes especially for those industries which were believed to make ‘extra profit’ – banking, telecommunications and retail. Since taxes cannot be reviewed by the Constitutional Court, many cases relating to them ended before the CJEU.46 Beyond these open conflicts, the main question is whether non-transferable powers exist.

B.  Limits to the Transfer of EMU Related Powers to the EU The case law of the Constitutional Court has often been inspired by the authoritative practice of the Bundesverfassungsgericht. This was the case even before Hungarian accession to the EU, and includes the transplant of the idea of constitutional identity47 Notwithstanding the Delphic phrases of the case law, the constitutional identity together with the sovereignty of Hungary may limit the scope and extent of powers to be transferred to the EU, even if the precise limits are unclear. In a very recent decision regarding the Unified Patent Court, the Hungarian Constitutional Court,48 in attempting to clarify the question of transfer limitations, denied the transfer of judicial competences to the Unified Patent Court. This decision shows that there are some non-transferable core competences of the state and that they cannot be transferred without a specific constitutional provision providing for that. Furthermore, it may also follow that fiscal and monetary powers might also belong to these powers to some extent.

C.  Judicial Scrutiny of E(M)U Secondary Legislation The case law of the Constitutional Court is rather contradictory. It has emphasised on various occasions that it lacks the power to decide on the validity of secondary EU law. Nonetheless, this did not hinder the constitutional review of Hungarian acts implementing EU acts, which eventually resulted in a partial non-application of EU law (eg sugar quotas49 or the Single Payment Scheme).50

45 Cf Ulrich Häde, ‘Unabhängigkeit für die ungarische Nationalbank?’ (2005) 22 EuZW, 679; Attila Vincze, ‘Die Auswirkungen der Maastrichter Verträge auf die Rechtssysteme der Beitrittsländer: Ungarn und der Euro’ in M Anderheiden (ed), 25 Jahre Vertrag von Maastricht (Baden-Baden, Nomos, 2018) 117, 124–26. 46 Cf, eg concerning the telecommunications levy the decision of the Constitutional Court 1618/B/2010. AB; some of these levies however were held to be contrary to EU law, eg ECJ Judgment of 5 February 2014, C-385/12, Hervis (ECLI:EU:C:2014:47). 47 Decision 22/2016. (XII. 5.) AB, Attila Vincze, ‘Ist die Rechtsübernahme gefährlich?’ (2018) 73 ZÖR 193; Attila Vincze, Nóra Chronowski, ‘Önazonosság és európai integráció – az Alkotmánybíróság az identitáskeresés útján’ (2017) 72 Jogtudományi Közlöny 117. 48 Decision 9/2018 (VII. 9.) AB; Nóra Chronowski, Attila Vincze, ‘Az Alkotmánybíróság az Egységes Szabadalmi Bíróságról – zavar az erőben’ (2018) Jogtudományi Közlöny 477. 49 Decision 17/2004. (V. 25.) AB; András Sajó, ‘Learning Co-operative Constitutionalism the Hard Way: the Hungarian Constitutional Court Shying Away from EU Supremacy’ (2004) 2 ZSE 351. 50 Decision 142/2010. (VII. 14.) AB, Vincze, Chronowski, Magyar alkotmányosság (2018) 280–83.

446  Attila Vincze, Pál Sonnevend and András Jakab Moreover, in a recent decision, the Constitutional Court expressly envisaged an ultra vires control. However, it did not clarify whether this control should be exercised on the basis of EU law or the national constitution, or a combination of both.51 As for EMU law, although Hungary is not yet a full EMU member, there is no reason to think that the principles that are applied to EU law will not be applied also to the EMU. This conclusion follows from the fact that the Fiscal Compact was dealt with as if it was a founding treaty of the EU.52 Consequently, any Hungarian act implementing EMU measures may be subjected to constitutional review. As the Constitutional Court has not yet controlled secondary EU acts directly, it will probably continue to not do so in the future.

D.  Limits to ‘European Integration Outside the EU Legal Order’? The Basic Law, similar to the earlier Constitution, expressly recognises only a limited number of international obligations. These obligations are generally recognised rules of international law and treaties. It also recognises two kinds of treaties: classic treaties and the founding EU treaties. Putting it plainly, international organisations are not mentioned in the Basic Law, at all. Hence, an international obligation must be classified either as a classic treaty or as a founding EU treaty, tertium non datur. The practical consequence of this categorisation is the necessary parliamentary majority for the ratification of that treaty. A classic treaty requires a simple majority. A founding EU treaty53 requires a two-thirds majority. Neither classic nor founding EU treaties create obligations until they are ratified by the parliament and may be subject to referenda (Article 8(1)(d) of the Basic Law). These two kinds of treaties are confounding. Some international organisations such as NATO are hard to qualify, and any treaties serving European integration outside the classical EU legal order such as the ESM or the Fiscal Compact should be considered as a founding treaty of the EU. This conclusion was reached also by the Constitutional Court as it classified the Fiscal Compact as a founding EU treaty.54 Although it is a kind of oversimplification, the Basic Law offers no other option. Moreover, it would be contradictory to require a two-thirds majority for the ratification of the founding treaties and later enable their modification by a simple majority even if the treaty in question is vitally interlocked with the founding EU treaties. In this respect the Hungarian Basic Law is much closer in its wording to the German Basic Law (Article 23 GG) than to the Austrian Federal Constitution (Article 50 B-VG). The Hungarian Basic Law provides that some powers may be conferred to the EU based upon an international agreement in order to enjoy the rights and fulfil the obligations following from the EU membership. From this perspective, any international agreement which is reserved for EU Member States in their capacity as such should be classified as a founding treaty. This somewhat oversimplified but clear-cut distinction has been radically changed by the Decision of the Constitutional Court regarding the Unified Patent Court, which was established by an instrument of enhanced cooperation – an international agreement exclusively among EU Member States. It was held that this is not covered by the EU clause of the Basic Law (Article E), and the judicial powers are not transferable without a proper constitutional basis.55 Notwithstanding

51 Decision

22/2016. (XII. 5.) AB. 22/2012 (V. 11.) AB. 53 Decision 22/2012 (V. 11.) AB. 54 Decision 22/2012 (V. 11.) AB. 55 Decision 9/2018 (VII. 9.) AB. 52 Decision

Hungary  447 the judicial nature of the powers to be transferred, the construction of the Unified Patent Court and the ESM do not differ too much inasmuch as both are in essence a kind of ‘enhanced cooperation’, and in both cases sovereignty rights are touched. This new decision seems to contradict the one on the Fiscal Compact,56 which classified the Fiscal Compact as a founding EU treaty, and it is hard to see why the Unified Patent Court is not a founding EU treaty as well. One might of course find hair-splitting nuances between the Fiscal Compact and the Unified Patent Court. The former imposes obligations on the Member States and the latter requires a transfer of powers, the former is about fiscal prerogatives and the latte is about patents. These are, at the end of the day, subtle differentiations of limited importance in contrast to the similarities that both of them are international agreements concluded by EU Member States in order to further develop European integration in certain areas. The message of the decision of the Constitutional Court is that a hybrid agreements aimed to further develop EU law will require a constitutional amendment. Taking into account that the ruling coalition of Mr Orbán commands a two-thirds majority in the parliament since 2010, which is enough for amending the Constitution according to the needs of the government, the difference between a constitutional amendment and the ratification of a funding EU treaty is rather limited as both require a two-thirds majority. A constitutional amendment can, however, be easier to defend politically in the international arena.

E.  Constitutional Law Scrutiny of EMU Reform Scenarios Irrespective of the fact that currently the Basic Law prohibits the introduction of the euro in Hungary, it enables further integration as far as it does not lead to transferring core competences. Moreover, even if the recent ruling of the Hungarian Constitutional Court on the Unified Patent Court57 seems to exclude a development of the EU legal order by means of hybrid international agreements among the EU Member States such as the ESM, it does not exclude measures of secondary EU law. The most important propositions regarding the EMU are to be found in the Commission’s ‘Reflection Paper on the Deepening of the Economic and Monetary Union’,58 which identifies different fields of action of further integration. Since the publication of the Reflection Paper meaningful progress has been made in each area. A reform delivery tool, structural reform support, a dedicated convergence facility for Member States on their way to joining the eurozone,59 or even a restructuring of the available resources60 does not raise questions of national constitutional law in Hungary, as far as they do not affect national budgetary rules. Nonetheless, the efficacy of these tools depends heavily on

56 Decision 22/2016. (XII. 5.) AB. 57 Decision 9/2018 (VII. 9.) AB. 58 Attila Vincze, ‘Great leap forward or a permanent revolution – reflections on the Reflection Paper on Deepening the Economic and Monetary Union’ in A Kellerhals, T Baumgartner (eds), New dynamics in the European integration process – Europe post Brexit (Zürich, Schulthess Juristische Medien AG, 2018) 167. 59 European Commission, ‘Communication on new budgetary instruments for a stable euro area within the Union framework’, COM (2017) 822. 60 European Commission, ‘Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006’ COM (2017) 826.

448  Attila Vincze, Pál Sonnevend and András Jakab national ownership and a deep embedding into the European Semester which may raise questions of constitutional law. Strengthening fiscal responsibility by building up and sustaining adequate fiscal buffers, notably in good times, as foreseen by the Stability and Growth Pact61 and introducing medium-term fiscal planning requires domestic constitutional rules to be effective. On the one hand, it is necessary to introduce these rules as yardsticks of constitutionality of the budget, and, on the other, it is necessary to empower the Budgetary Council to scrutinise the national budget against this yardstick. The Basic Law contains a national debt brake (Article 36(4) Basic Law) and the principle of balanced, transparent and sustainable budget (Article N Basic Law). These rules need to be complemented by the requirement of a multi-annual medium-term planning, by the national rainy day fund, and at least by a rudimentary constitutional reference to the European Semester, if the constitutional rules have to comply fully with European objectives. A rather harder nut to crack is the multi-annual medium-term planning, especially in case of elections and a new government. Elections, as a democratic expression of the will of the people, often imply budgetary restructuring according to the party manifesto. Taking into account that the parliament and the government shall have primary responsibility for the observance of the principle of balanced, transparent and sustainable budget (Article N(2) Basic Law), which enables the new government to set its own preferences, a multiannual medium-term planning surely curtails the manoeuvring capabilities of a government and requires a constitutional footing. Multi-annual planning is a further shift towards Keynesian macroeconomics,62 which implies decision-making by a small and enlightened group of wise people, but no democracy in normative terms of the word.63 The same is true for the results in the Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States,64 which is not particularly concerned about the institutions through which such results might be reached. Not questioning here the soundness and rationality of a multiannual planning and a deeper connection of national budgetary planning with the European Semester, the Commission itself highlights the need for internalising the rules into the domestic legal order, for effective means to correct non-compliance, and, of course, the jeopardy of the deficit bias and more generally the pro-cyclical policy to long-term sound budgetary policies (not speaking of electoral or political business cycles). If this proposal indeed aims to avoid the infamous destiny of the Stability and Growth Pact of not being taken seriously, it indeed needs constitutional rules requiring multi-annual fiscal planning. The proposal of the Commission entails an option of a ‘second round of reform commitment packages could be agreed in the course of the programming period, for example at the request of a new government’.65 However, this needs to be in line with both the requirements of a multi-annual planning and those of democratic accountability. The decisive issues concern the role of European institutions in national financial policy. Especially, it is important to determine (1) whether and to what extent they may or may not have a veto power, (2) to what extent these powers may or may not curtail national budgetary powers, and (3) whether they affect the democratic element of the Constitution so deeply that it would be considered as non-transferrable core competences, as a part of constitutional identity. 61 COM (2017) 822. 62 James M Buchanan, Democracy in Deficit: The Political Legacy of Lord Keynes (Indianapolis, Liberty Fund, 1977), 33. 63 Buchanan, Democracy in Deficit (1977) 79 et seq. 64 European Commission, ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’, COM (2017) 824. 65 COM (2017) 822, 9.

Hungary  449 Setting up a rainy day fund and debt reduction is hard to manage together, as both of them reduce the annual amount to be spent by the government. On the one hand, the rainy day fund needs to remain intact for as long as possible, and, on the other, the bigger the pot, the greater the temptation to use that fund. Thus, setting it up will require an incentive, probably at the European level (eg reform delivery tools), and effective constitutional safeguards not to use the funds unless really necessary. If the safeguards also encompass some kind of a veto power by the European institutions, the question of non-transferrable core competences may be raised. Regarding debt reduction, the Basic Law entails a provision, according to which as long as the sovereign debt exceeds half of the GDP, the parliament may only adopt an Act on the central budget which provides for debt reduction in proportion to the GDP (Article 36 (5) Basic Law). The applicable national regulation in this case is the Law on economic stability, which provides for automatic correction of the national debt level. However, that correction is a ridiculously low 0.1 per cent of the GDP.66 This is lower than a statistical miscalculation, and can easily be reached by cooking the books, and cannot be considered effective. This national rule will surely require a modification, to comply with the Stability and Growth Pact, which sets 0.5 per cent of GDP as a benchmark.67 The Council Directive proposal also sets out some features of the national independent bodies empowered to monitor and assess the compliance with fiscal framework rules and to call upon the budgetary authorities to activate the correction mechanism. Two of them may require some amendments in the Hungarian legal system. First, the independent body, the Budgetary Council, may not take instructions from the budgetary authorities of the Member State or from any other public or private body. The formulation is very similar to that of Article 130 TFEU, which, according to the CJEU, seeks to shield the ECB and its decision-making bodies from outside influences.68 If the wording of the proposed directive aims to achieve the same objective, the rules regarding the Budgetary Council might need to be amended, as the two members of the Budgetary Council represent other public bodies (National Bank and State Audit Office). There are two decisive questions here: what is a ‘budgetary authority’ in the sense of the directive (the State Audit Office is probably such an institution), and does a voting right mean giving instructions (probably yes). Nonetheless, if the actual composition of the Budgetary Council does not contradict the directive, it would be necessary to amend the law on State Audit Office and that on the National Bank. This is because their presidents, by virtue of being members of the Budgetary Council, need to be nominated and appointed on the basis of their experience and competence in public finances, macroeconomics and budgetary management, and by means of transparent procedures. Furthermore, the Budgetary Council will need to have adequate and stable resources to carry out its mandate effectively. Nowadays, it does not have its own staff meeting the requirements of the proposed Directive. Instead, it relies heavily on the National Bank and the State Audit Office (as was shown earlier). Hence, the implementation of this directive will also depend on the question of what ‘adequate and stable own resources’ means. May the Budgetary Council depend on the capacities of other bodies or not?



66 §

4 (2a) Act CXCIV/2011 on the Economic Stability of Hungary. 5 (1) subpara 2 and Art 9(1) subpara 2 Regulation (EC) No 1466/97. 68 Case C-11/00, Commission v ECB, para 134 (ECLI:EU:C:2003:395). 67 Art

450  Attila Vincze, Pál Sonnevend and András Jakab A long-lasting problem, and one of the objectives of the Reflection Paper, was to strengthen the EMU governance, and to create a European Minister of Economy and Finance.69 This permanent post stretches somewhat Protocol 14 of the Lisbon Treaty, as it contradicts the principle of informality laid down in that Protocol, and the appointment of vice-presidents is laid down in the EU Treaty. Nonetheless, taking into account the factual strength of the Eurogroup (which commands a qualified majority) and the circumstance that much more severe contradictions between law on the books and in action have already been blessed by the CJEU (the ESM, or the quantitative easing for instance), the proposed position is consistent with the existing treaties. Moreover, the Commission is a board, and acts as board, and hence the appointment of a vice-president does not alter the powers of the Commission itself, so it does not require any transfer of new powers, and consequently it does not raise any questions of domestic constitutional law. One of the lingering problems is to tackle financial vulnerability – the high levels of public and private debt inherited from the crisis years. Regarding public debts, the Basic Law does not exclude any further integration as far as the contribution of Hungary remains limited and conditional on its consent. Setting up a European Monetary Fund or joining the EMU with an operational European Monetary Fund, even if it is established by a Regulation, might be considered as a fundamental change of circumstances, that is, a new Founding Treaty in substantive terms, and, therefore, it might require a two-thirds majority of the parliament (Art E (4) Basic Law). Nonetheless, as far as the contribution of Hungary is limited and conditional, there are no substantive constitutional restraints of joining the EMU or the EMF. The problems of ‘non-performing loans’ and the zombie banks are to be solved by ­risk-reduction and risk-sharing. This would happen through (1) completing the Banking Union, (2) further centralising the financial supervision, and (3) establishing a common fiscal backstop for the Single Resolution Fund as well as a European Deposit Insurance Scheme (EDIS). None of these measures is excluded by the Basic Law. None of them belongs to the non-transferable core competences. The only question might be whether they require a modification of the founding treaties, and, consequently, a two-thirds majority in the parliament. The same applies for the Single Resolution Mechanism. Joining the EMU means also joining the Banking Union. According to Article 41(2) of the Basic Law, the National Bank of Hungary shall perform the supervision of the financial intermediary system. These powers are exercised in the Single Supervisory Mechanism jointly by the ECB and the national authorities. The supervisory power of the National Bank is set out in the Basic Law and does not differ from any other powers which might be transferred under Article E of the Basic Law. Hence, it is not an obstacle for joining the EMU or the Banking Union. The Commission also envisages some sort of permanent macroeconomic stabilisation fund. The Commission proposes three different options: a European Investment Protection Scheme, a European Unemployment Reinsurance Scheme or a European Rainy Day Fund. The main question, especially in light of the Pringle judgment70 and the statement of the Commission that these funds are ‘for unusual circumstances when monetary policy reaches its limits’ (emphasis added),71 is whether these options require a Treaty amendment. If that is the case, the national constitutional limitation is a formal one. The Treaty amendment and the new conferral of powers need to be ratified according to Article E of the Basic Law.



69 European 70 Case

Commission, ‘Communication on a European Minister of Economy and Finance’ COM (2017) 823. C-370/12, Pringle (ECLI:EU:C:2012:756). Commission, Reflection Paper on the Deepening of the Economic and Monetary Union, 25.

71 European

Hungary  451

i.  Structural Reform Measures (such as the Blueprint of the Commission, The Five Presidents’ Report 2015) The vague proposals for structural reform measures are from 2015. Nonetheless they have been set out in the Reflection Paper on the Deepening of the Economic and Monetary Union, and many of them are subject to concrete legislative proposals. These proposals have been scrutinised already in this chapter regarding the constitutional obstacles. Although full membership in the EMU is not on the table now for Hungary, the reform measures are not discussed either politically or academically in Hungary. Nonetheless, the ruling coalition is by and large opposed to further integration and to further European oversight of national policy decisions, and it is hard to imagine that the present government would like to give up national powers in favour of the EU, which is also true for fiscal and monetary issues. For the past few years, the government has been trying to find legal, and possibly constitutional, obstacles to avoid intensified European cooperation (eg migration, or the Unified Patent Court), and get these obstacles rubber-stamped by the Constitutional Court. This approach is to be expected also in case of the EMU measures.

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law Implementing EMU-related instruments is a multi-layered issue. First, Hungary is not a full member of the EMU, and joining it will surely require a constitutional amendment regarding the official currency. The provisions regarding the National Bank do not need any amendment. However, it is necessary to enable joining the ESM, as Article E of the Basic Law seems to prevent the transfer of competence to establish hybrid constructions such as the ESM.72 This, however, seems to contradict the earlier case law dealing with the Fiscal Compact which was held to be covered by the EU clause of the Basic Law. As constitutional amendments must not be subject to a national referendum (Article 8(1)(a) of the Basic Law), this decision will be made by the parliament alone and the only political control is the requirement of super-majority (two-thirds of the members of parliament) to amend the constitution. Any further EU instruments are to be implemented by acts of parliament or, eventually, decrees of the government or the governor of the National Bank, depending on the subject matter of the instrument. Two kinds of acts of parliament need to be differentiated in that regard. First, cardinal or organic acts setting out the basic outlines of economic policy73 and institutions (most notably the National Bank)74 require a two-thirds majority. Second, any other acts of parliament require a simple majority, and the only question is whether the government may or may not whip through a bill. As this legislation serves the implementation of instruments enacted by an international organisation which Hungary joined with a treaty, they must not be subject to a national referendum. The former Constitution was committed to establishing a market economy, which was not enforced by the Constitutional Court.75 Thus, left or right-wing governments were rather free to 72 Cf Decision 9/2018 (VII. 9.) AB of the Constitutional Court. 73 Most importantly Act CXCIV/2011 on the Economic Stability of Hungary. 74 Act CXXXIX/2013 on the Hungarian National Bank. 75 Orsolya Salát, Pál Sonnevend, ‘9. §’ in A Jakab (ed), Az Alkotmány kommentárja, 2nd edn (Budapest, Századvég Kiadó, 2009) para 5.

452  Attila Vincze, Pál Sonnevend and András Jakab pursue their own economic or fiscal objectives, restrained only by the political reality and not by enforceable rules. While the commitment to a market economy was upheld in the new Basic Law (Article M), it is not enforced, and remains a constitutional fig-leaf.76 The fiscal constitution had two levels: local and national. Local government formerly enjoyed constitutionally protected financial independence, which was also misused. Based upon these experiences, the financial independence of local government was drastically cut. The national budget was prepared by the government and was to be approved by the parliament and audited by the State Audit Office, which was reinstated in 1989. Moreover, the State Audit Office had the somewhat unique duty77 of assessing the soundness of the budget, and counter-signing any loans taken by the state. A dynamic interpretation of this provision would have been capable of absorbing the requirements of the EMU,78 fostering a fiscal conservativism. This, unfortunately, had never happened. The radically worsening public debt situation of Hungary between 2002 and 2008 clearly showed the inaptness of the earlier fiscal constitution. In 2009, after being granted a financial assistance orchestrated by the EU and the IMF, an act of parliament was enacted, the Law on economising public resources,79 in order to get a grip on the budget. This law introduced a Budgetary Council and some rules to ensure a balanced budget (eg a pay-as-you-go rule of financing expenditures by means of current funds rather than by borrowing). However, the law was not of a constitutional rank. Hence, despite of all its progressive ideas, an eventual violation of this act could not lead to the unconstitutionality of a financially unsound budget. Experiencing the ineptitudes of the earlier Constitution and welcoming some European responses to the euro crisis, a number of new constitutional rules were enacted by the 2011 Basic Law. Although often labelled as a trademark of illiberal ideas, it captured some ongoing trends of financial constitutionalism and put forward substantive and institutional limitations to domestic fiscal policy (Articles 36–44 Basic Law), in order to comply with the principles of stability, transparency and sustainability (Article N Basic Law). The main actors in preparing and approving the yearly budget remained the government and the parliament. The State Audit Office is still in charge of auditing. Moreover, a ‘Budget Council’ was established to enforce fiscal constitutional rules. The Basic Law introduced a severe limitation on increasing national debt, a debt ceiling of 50 per cent of GDP, and an obligation to avoid increasing national debt in subsequent years while national debt is above the constitutional debt ceiling (Article 37(2)–(3) of the Basic Law).80 With the current national debt way above the debt ceiling (around 72 per cent of the GDP), these ­provisions represent a constitutional obligation for the government to reduce national debt below the debt ceiling (Article 36(4) and (5) of the Basic Law). The actual enforceability of these provisions depends on the institutional brakes. Article 44 of the Basic Law equips the Budget Council with the power of preliminary endorsement of the

76 Nóra Chronowski, Attila Vincze, ‘Alkotmánybíráskodás (gazdasági) válságban’ (2014) 2 Alkotmánybírósági Szemle 104. 77 Cf Attila Vincze, ‘32/C. §’, in A Jakab (ed), Az Alkotmány kommentárja, 2nd edn (Budapest, Századvég Kiadó, 2009) paras 44–47. 78 Cf Attila Vincze, ‘A takarékos állami gazdálkodásról szóló törvény – sok huhó semmiért?’ (2009) 2 Közjogi Szemle 31. 79 On the potential shortcomings of the earlier fiscal constitution see Attila Vincze, ‘A takarékos állami gazdálkodásról’ (2009) 2 Közjogi Szemle 31. 80 A debt ceiling was first introduced on 1 January 2009 by Act 2008/LXXV excluded raising national debt in subsequent budgetary years.

Hungary  453 budget for the purpose of ensuring that the budget in preparation complies with the debt ceiling and the debt reduction obligation.81 Although establishing a Budget Council goes back 2009, when Hungary almost defaulted, the present Budget Council is quite different from its predecessor. The original Budget Council of 2009 had three members, each nominated by the presidents of the Republic, the National Bank and the Court of Auditors. The Budget Council analysed the annual budget and reported on its sustainability to the parliament. It had no veto power, but had to be consulted and render an advisory opinion.82 It had its own staff and budget and, therefore, enjoyed organisational, financial and personnel independence. The new Budget Council envisaged by the Basic Law looks similar to its predecessor, but there are many important differences. It has three members, but no staff of its own. Therefore, its members cannot make use of institutional expertise and manpower, a lack which hampers the conclusiveness of any findings. Hence, its decisions rely completely on the personal expertise of the three members. They are the President of the Budget Council, the Governor of the National Bank and the President of the Court of Auditors (Article 44(4) Basic Law). The President of the Budget Council, as was mentioned, has no institutional staff to rely on. Therefore, he cannot seriously ‘do the maths’ and check whether taxes, expenditure growth, and further estimates are probable and, in turn, whether public finances meet the requirement of sustainability. The Governor of the National Bank normally has no interest at all in condemning the budget. Doing so would create financial risks and render his or her ‘primary’ job much more complicated. The Court of Auditors still has a statutory duty to prepare a report on the budget.83 Therefore, one may not expect that its president would contradict his or her audit report ex post or ex ante. Thus, one may not expect anything more than cautious warnings. All in all, two of the members have institutional interests not to exercise any veto power and the president has no support staff and hence no power and autonomy to risk far-going decisions. Moreover, all of the present members were elected by the now ruling coalition. Thus, there is little chance of opposing a budget of the present coalition (nonetheless, they might hamper the budgetary powers of a future government). A further question is the time horizon of budget sustainability. A budget is typically adopted for a year, and that should be the yardstick for the Budget Council as well. A longer time horizon would imply the sustainability of public finances and not the budget, which depends on a number of unknown and unforeseeable events. The sustainability of a simple budget is also hard to estimate as long as the parliament has the power to cut expenditure or impose new taxes during the budgetary year – not to speak of creative accounting, that can always help to ‘cook the books’ at the end of the financial year. The impact of EMU-related measures is rather limited in Hungary due to its status as a ‘Member State with a derogation’ according to Article 139 TFEU. The measures and provisions relating to financial/economic policy are of two different natures. Some of them are guiding principles, such as sound public finances (Article 119(3) TFEU) or balanced budget (Article 3(1) Fiscal Compact) and are binding on Hungary. Others are detailed rules such as those in the Stability and Growth Pact which are only partially binding, such as the coercive means of remedying excessive deficits. Although the principles are theoretically binding for all EU Member States that have not opted out of the EMU, practically they are 81 Act 2008/LXXV on the prudent management of state resources and budgetary responsibility. 82 The tasks were to some extent a duplication of the duties of the Court of Auditors which had this power from 1990; however, it never stopped overspending or irrational budgetary expenses. 83 Act LXVI/2011 on the Court of Auditors, sec 5.

454  Attila Vincze, Pál Sonnevend and András Jakab rather a lex imperfecta. The Fiscal Compact requires the adoption of rules ensuring a balanced budget and a debt brake, which were basically enacted by the Basic Law even before the Fiscal Pact was sanctioned. The Hungarian constitutional rules prescribe a debt ceiling of 50 per cent of GDP, which is stricter than the TFEU or the Fiscal Compact, and even though there is no annual deficit rule, there is a constitutional obligation to reduce national debt in order to achieve the debt ceiling. Thus, from a very optimistic point of view, there is a kind of compliance with the European rules. The devil, however, as in most cases, is in the details. What is public debt? More precisely, what do ‘public’ and ‘debt’ mean? The Hungarian rules of state budgeting do not comply fully with the European system of national and regional accounts,84 which is, however, legally not required for internal use. The common methodology and accounting rules serve only the purposes of the EU, and EU Member State are not obliged to use them in compiling accounts for their own purposes.85 Hence, it is perfectly legal (even if it might sound silly) to have two accounting systems: one for domestic and for European purposes. Thus, depending on the accounting system (European or domestic), one might easily come to different conclusions regarding the level of public debt. Hence, the efficacy of any debt brake rule remains questionable at the very least if there is no consensus regarding the methodology. As the European accounting standards are not part of the internal budgetary rules, there are no real national safeguards to enforce them, even if both of them pursue to achieve the same goals, and by and large they go in the same direction.

A.  Democratic Legitimacy and Accountability in Fiscal and Economic Policy The main actor in national fiscal policy is the parliament approving the budget plan of the government. Thus, it should also be the main focus of accountability. However, this is rather an illusion, rooted in 19th-century parliamentarism. The governing party or parties rely on the political success of the government and it is somewhat naïve to expect that the parliament would torpedo such an important act as the budget. As has also been empirically proven,86 Hungarian fiscal policy follows the political ‘business cycle’87 and the parliament is not too keen to restrain spending in election years or to hold government accountable for financial mismanagement. A further institutional safeguard might be the State Audit Office. However, it is only an ancillary organ to the parliament, delivering information but not decisions. In case of grave financial mismanagement it might initiate criminal investigation. However, this option is not suitable for general accountability for financial policy decisions. The only body with the sole duty to monitor financial policy is the Budgetary Council, which has a power of veto over the budget if the debt ceiling rules are not observed.88 The budget

84 Council Regulation (EC) No 2223/96. 85 Council Regulation (EC) No 2223/96, Art 1. 86 Cf András Olivér Németh, ‘Politikai Költségvetési Ciklusok Kelet-Közép-Európában – Elmélet és Empíria’ (2015) 4 Köz-Gazdaság 167; Ágnes Halász, ‘Fiscal Cycle Effects In The Pattern of the Hungarian State Expenditures’ (2014) 36 Society and Economy 263. 87 Cf eg Robert Franzese, ‘Political Business Cycles’ in BR Weingast, DA Wittman (eds), The Oxford Handbook of Political Economy (Oxford, Oxford University Press, 2006) 545. 88 Critically, Commission for Democracy Through Law (Venice Commission), Opinion on the New Constitution of Hungary, adopted at its 87th Plenary Session (Venice, 17–18 June 2011) Nr CDL-AD(2011)016, para 129.

Hungary  455 cannot be passed in parliament without the endorsement of the Council. In light of Article 3(3) of the Basic Law, the lack of endorsement could even lead to the fall of government. This is because the president of the Republic may dissolve the parliament and order new elections if the budget for a given year is not accepted by 31 March of that year, which may result from the veto of the Budget Council. The Venice Commission held these draconian powers to be undemocratic.89 This is indeed right. They are not simply undemocratic by result; they were meant to be undemocratic. In any event, they are no more undemocratic than any other counter-majoritarian institution (eg the Constitutional Court). The question is not whether an institution is or is not undemocratic, but rather whether the allegedly undemocratic powers might be justified by other compelling basic constitutional principles. A sustainable budget is one of those principles, because it guarantees that expenditures should be basically covered by taxes, and, therefore, it guarantees a just allocation of burdens between present and future generations.90 Thus, a balanced budget is a cornerstone of democracy because it secures the interests of future generations, which are not taking part in the parliamentary decisions of today but are obliged to take their burdens tomorrow. Veto powers are moreover necessary, because without them a Budget Council would remain toothless, just as the Court of Auditors had been for two decades. The goal of debt reduction came at the cost of curtailing the competences of the Constitutional Court in the constitutional review of fiscal legislation as long as the national debt ratio is above the constitutional debt ceiling. This was an overreaction, as the Constitutional Court acknowledges a broad margin of appreciation in matters falling within fiscal policy, and the elimination of constitutional review of tax legislation left citizens vulnerable to the strict fiscal policy.91 Public debt may also shift the focus of accountability. A heavily indebted nation is rather accountable to international lenders, limiting political manoeuvrability and depleting the real decision-making powers of the parliament. This point was also raised, rather politically than legally, during the years of financial crisis, as Hungary borrowed around $25 billion, which was orchestrated by the Ministry of Finance and the National Bank without the parliament having a say.92 The conditionality attached to these agreements changed the perspective of accountability. The mechanisms of national accountability faded away and the international ones became more important. It also turned out to be clear that although the government is accountable to the parliament in general and theoretical terms, the parliament may be faced by a fait accompli. Neither the former Constitution, nor the present Basic Law made institutional or organisational arrangements to include parliament into those fiscally significant decisions.

B.  National Parliament in E(M)U Decision-Making Because the parliament cannot give any binding mandates, there are only indirect channels to push specific interests through. 89 Ibid. 90 Just to mention two classical books from James M Buchanan, Public Principles of Public Debt: A Defense and Restatement (Indianapolis, Liberty Fund, 1958) and James M Buchanan, Democracy in Deficit: The Political Legacy of Lord Keynes (Indianapolis, Liberty Fund, 1977). 91 Cf, eg concerning the telecommunications levy the decision of the Constitutional Court 1618/B/2010. AB; or concerning the implementation of the Community Customs Regulation decision of the Constitutional Court 3039/2012. (VI. 21.) AB. This did not curtail the powers of the ordinary courts to require a preliminary ruling from the CJEU, and their power not to apply a tax contravening EU law, see eg ECJ judgment of 5 February 2014, C-385/12, Hervis (ECLI:EU:C:2014:47). 92 György Csáki, ‘IMF-hitelek Magyarországnak, 1996–2008’ (2013) 58 Pénzügyi Szemle 94; Attila Vincze, ‘Az IMF hitelek jogi természete’ (2009) 56 Magyar Jog 480.

456  Attila Vincze, Pál Sonnevend and András Jakab One of them is the formulation of the national position regarding strategically important draft EU legislation. In the course of EU decision-making, the government shall act on the basis of the position adopted by the parliament (Article 19 Basic Law).93 The position of the parliament, however, is not binding. The Law on the National Assembly (Act XXXVI/2012) sets out a scrutiny procedure, according to which it takes part in the decision-making process indirectly, as the government and the parliament work together in formulating the national position regarding draft EU legislation. The government is obliged to reach the widest possible consensus with the parliament and to observe the national position. However, this position is not binding, and in exceptional cases the government may deviate from it. It is not clearly defined however, what an exceptional case is, who decides on the exceptionality, and how a deviation might be justified. The government is merely obliged to present an oral justification why was it necessary to deviate from the national position.94 This is a very pressing issue because the government may also support the adoption of EU acts overriding existing items of national legislation, including also those requiring a super-majority (two-thirds of the MPs), which a government commands only exceptionally. Hence, there are plausible arguments suggesting that in case of contravening existing national legislation requiring a super-majority, the government should not deviate from the national position hammered out together with the parliament. The constitutionality of a deviation could be eventually subject to constitutional review.95 No such application has been lodged yet. A second channel to affect European legislation is possible through Hungarian MEPs who may participate in the work of the Hungarian parliament. The MEPs are informed regularly on plenary sittings as well as on meetings of standing committees. Moreover, they are entitled to take part in the meetings of all standing committees, and they also have the option to take the floor.96 A further option is to make use of the inter-parliamentary cooperation in the EU. The government, being the ‘efficient part of the constitution’ (Bagehot), dominates the Parliament. Although the above-mentioned channels exist, it would be naïve to think that parliament could push through any interests against the will of the government.

C.  National Parliament in EMU Secondary Law-Making Monitoring compliance with the requirements of the principle of subsidiarity is carried out by the Committee on European Affairs of the Hungarian Parliament,97 which submits a report to the plenary session on the eventual adoption of a reasoned opinion. The opinion eventually adopted shall be sent by the Speaker to the European Commission, the European Parliament and the European Council as well as to the government of Hungary. The Committee might also propose to the government to bring an action of annulment before the CJEU on the grounds of infringement of the principle of subsidiarity.

93 Cf Andrea Király, ‘Az EU döntéshozatalában képviselendő magyar nemzeti pozíció kialakításának elmélete’ (2005) 4 Jogelméleti Szemle, 21; József Petrétei, ‘A magyar tagállami kormányzati részvétel az uniós döntéshozatalban’ in N Chronowski (ed), Alkotmány és jogalkotás az EU tagállamaként. Válogatott tanulmányok (Budapest, HVG-ORAC, 2011) 326. 94 Vincze, Chronowski, Magyar alkotmányosság (2018) 358–61. 95 Attila Vincze, ‘Egy félreértett alkotmánybírósági hatáskörről’ (2009) 2 Közjogi Szemle 14. 96 Vincze, Chronowski, Magyar alkotmányosság (2018) 361. 97 Act XXXVI/2012 on the National Assembly.

Hungary  457 Probably the most important initiative was the yellow card procedure regarding the European Public Prosecutors Office. Based on Report J/12694 submitted by the Committee, the parliament affirmed in Parliamentary Resolution 87/2013 (22 October 2013) that the Proposal for a Council regulation on the establishment of the European Public Prosecutor’s Office did not comply with the principle of subsidiarity.98

V.  Resulting Relationship between EU Law and National Law The supremacy and direct applicability of EU law is accepted in Hungary and has been confirmed explicitly or implicitly by the Hungarian Constitutional Court. Article E of the Basic Law entails a restriction regarding the transfer of powers, enabling such transfer only ‘to the extent necessary to exercise the rights and fulfil the obligations deriving from the Founding Treaties’. According to the Constitutional Court, the transfer of powers is not necessary if it would ‘violate human dignity, another fundamental right, the sovereignty of Hungary or its identity based on the country’s historical constitution’.99 In recent years, the Constitutional Court has been more and more restrictive regarding the transfer of powers or European cooperation, even if it tries to confuse this motive by citing other European constitutional courts.100 European politics is overwhelmingly a governmental issue. Agenda-setting and formulation are basically dominated by the government. The parliament has some powers to influence them, but no power to legally bind the government. Moreover, the prime minister and the party chairman is the same person, who personally picked and chose MPs, and hence all of them are existentially dependent on him. The parliament has some scrutiny powers, but in practical terms they are not decisive. Constitutional restraints are also often initiated by the government in order to bind future governments or to produce excuses for the government explaining why it cannot support a European initiative. The migration crisis, establishing a European Public Prosecutor or the Unified Patent Court are all vivid examples of how constitutional politics were applied in order to make it constitutionally impossible to join some initiatives. A full EMU membership is constitutionally excluded by express provisions regarding the currency and by the case law of the Constitutional Court, which became rather hostile towards deepening European integration without precise constitutional footing. Many objectives of the EMU reforms correspond to the objectives of the Hungarian government, and many legal requirements set out by the Fiscal Compact and further instruments, especially regarding balanced budget, are already met. This is not the outcome of an intention to comply with the European legislation or to deepen integration but that of a political necessity to regain fiscal manoeuvrability. Therefore, the current governmental policy is rather a transactional one supporting European measures and initiatives which overlap its own objectives. Legal limitations are rather few, the Constitutional Court is rather reluctant to object to government objectives, and in any case the governing party commands a constitutional amending majority ready to tailor legal rules according to present needs.



98 COM(2013)

534; 2013/0255 (APP). 22/2016. (XII. 5.) AB. ‘Rechtsübernahme’ 193.

99 Decision

100 Vincze,

458  Attila Vincze, Pál Sonnevend and András Jakab

References JM Buchanan, Public Principles of Public Debt: A Defense and Restatement (Indianapolis, Liberty Fund, 1958). JM Buchanan, Democracy in Deficit: The Political Legacy of Lord Keynes (Indianapolis, Liberty Fund, 1977). B Berke, ‘Közösségi jog és a tagállamok jogrendszere: vonzások és taszítások’ (1995) 4 Magyar Jog, 240. B Berke, ‘Európai Unió, közösségi jog és nemzeti alkotmánybíráskodás’ (1996) 1–2 Jogállam. Budapesti jogi és politikai szemle, 7. N Chronowski and A Vincze, ‘Alkotmánybíráskodás (gazdasági) válságban’ (2014) 2 Alkotmánybírósági Szemle, 104. N Chronowski and A Vincze, ‘Az Alkotmánybíróság az Egységes Szabadalmi Bíróságról – zavar az erőben’ (2018) Jogtudományi Közlöny, 477. G Csáki, ‘IMF-hitelek Magyarországnak, 1996–2008’ (2013) 58 Pénzügyi Szemle 94. P Csuhány and P Sonnevend, ‘2/A. §’ in A Jakab (ed), Az Alkotmány kommentárja, 2nd edn (Budapest, Századvég Kiadó, 2009). Z Elkins, T Ginsburg and J Melton, The Endurance of National Constitutions (Cambridge, Cambridge University Press, 2009). European Commission, COM (2017) 822 ‘Communication on new budgetary instruments for a stable euro area within the Union framework’. European Commission, COM (2017) 823 ‘Communication on a European Minister of Economy and Finance’. European Commission, COM (2017) 824 ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’. European Commission, COM (2017) 826 ‘Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006’. R Franzese, ‘Political Business Cycles’ in BR Weingast and DA Wittman (eds), The Oxford Handbook of Political Economy (Oxford, Oxford University Press, 2006) 545. U Häde, ‘Unabhängigkeit für die ungarische Nationalbank?’ (2005) 22 EuZW, 679. Á Halász, ‘Fiscal Cycle Effects In The Pattern of the Hungarian State Expenditures’ (2014) 36 Society and Economy, 263. A Jakab, ‘On the Legitimacy of a New Constitution. Remarks on the Occasion of the New Hungarian Basic Law of 2011’ in MA Jovanović and D Pavićević (eds), Crisis and Quality of Democracy in Eastern Europe (The Hague, Eleven, 2012), 61. A Jakab, ‘The Two Functions of a Constitution’ in E Bos and K Pócza (eds), Verfassungsgebung in konsolidierten Demokratien: Neubeginn oder Verfall eines Systems? (Baden-Baden, Nomos, 2014), 78. A Jakab, ‘What is Wrong with the Hungarian Legal System and How to Fix it’ (2018) Max Planck Institute for Comparative Public Law & International Law (MPIL) Research Paper No. 13/2018. accessed 9 May 2019. A Jakab and G Gajduschek, ‘The Rule of Law, Legal Consciousness and Compliance’ in IG Tóth (ed), Social Report 2019 (Budapest, TARKI, 2019), 277. A Jakab and D Kochenov (eds), The Enforcement of EU Law and Values. Ensuring Member States’ Compliance (Oxford, Oxford University Press, 2017). A Jakab and P Sonnevend, ‘Continuity with Deficiencies: The New Basic Law of Hungary’ (2013) 9 European Constitutional Law Review, 102. A Király, ‘Az EU döntéshozatalában képviselendő magyar nemzeti pozíció kialakításának elmélete’ (2005) 4 Jogelméleti Szemle, 21. D Landau, ‘Abusive Constitutionalism’ (2013) 47 UC Davis Law Review 189. K Lenaerts and P van Nuffel, Constitutional Law of the European Union (London, Sweet & Maxwell, 2005). AO Németh, ‘Politikai Költségvetési Ciklusok Kelet-Közép-Európában – Elmélet és Empíria’ (2015) 4 Köz-Gazdaság, 167.

Hungary  459 J Petrétei, ‘A magyar tagállami kormányzati részvétel az uniós döntéshozatalban’ in N Chronowski (ed), Alkotmány és jogalkotás az EU tagállamaként. Válogatott tanulmányok (Budapest, HVG-ORAC, 2011), 326. A Sajó, ‘Learning Co-operative Constitutionalism the Hard Way: the Hungarian Constitutional Court Shying Away from EU Supremacy’ (2004) 2 ZSE 351. O Salát and P Sonnevend, ‘9. §’ in A Jakab (ed), Az Alkotmány kommentárja, 2nd edn (Budapest, Századvég Kiadó, 2009). P Sonnevend, ‘Alapvető jogaink a csatlakozás után’ (2003) 2 Fundamentum, 27. P Sonnevend, ‘§ 25 – Offene Staatlichkeit: Ungarn’ in A von Bogdandy, PC Villalón and PM Huber (eds), Ius Publicum Europaeum: Band II: Offene Staatlichkeit – Wissenschaft vom Verfassungsrecht (Heidelberg, CF Müller Verlag, 2008), 393. P Sonnevend, A Jakab and L Csink, ‘The Constitution as an Instrument of Everyday Party Politics: The Basic Law of Hungary’ in A von Bogdandy and P Sonnevend (eds), Constitutional Crisis in the European Constitutional Area (Oxford/Portland, Hart Publishing, 2015), 33. Z Szente, ‘The Political Orientation of the Members of the Hungarian Constitutional Court between 2010 and 2014’ (2016) 1 Constitutional Studies, 123. GA Tóth (ed), Constitution for a Disunited Nation. On Hungary’s 2011 Fundamental Law (Budapest/New York, Central European University Press, 2012). M Tushnet, ‘Constitutional Hardball’ (2004) 37 The John Marshall Law Review, 523. A Vincze, ‘32/C. §’, in A Jakab (ed), Az Alkotmány kommentárja, 2nd edn (Budapest, Századvég Kiadó, 2009). A Vincze, ‘A takarékos állami gazdálkodásról szóló törvény – sok huhó semmiért?’ (2009) 2 Közjogi Szemle, 31. A Vincze, ‘Egy félreértett alkotmánybírósági hatáskörről’ (2009) 2 Közjogi Szemle, 14. A Vincze, ‘Az IMF hitelek jogi természete’ (2009) 56 Magyar Jog 480. A Vincze, ‘A takarékos állami gazdálkodásról’ (2009) 2 Közjogi Szemle 31. A Vincze, ‘The ECJ as Guardian of the Hungarian Constitution’ (2013) 19 European Public Law 489. A Vincze, ‘Wrestling with Constitutionalism: The Supermajority and the Hungarian Constitutional Court’ (2014) 8 ICL Journal, 86. A Vincze, ‘Ungarns euroatlantische Integration’ in H Küpper, ZK Lengyel and H Scheuringer (eds), Ungarn 1989–2014 Eine Bilanz nach 25 Jahren (Regensburg, Friedrich Pustet, 2015), 37. A Vincze, ‘Die Auswirkungen der Maastrichter Verträge auf die Rechtssysteme der Beitrittsländer: Ungarn und der Euro’ in M Anderheiden (ed), 25 Jahre Vertrag von Maastricht (Baden-Baden, Nomos, 2018), 117. A Vincze, ‘Ist die Rechtsübernahme gefährlich?’ (2018) 73 ZÖR, 193. A Vincze, ‘Great leap forward or a permanent revolution – reflections on the Reflection Paper on Deepening the Economic and Monetary Union’ in A Kellerhals and T Baumgartner (eds), New dynamics in the European integration process – Europe post Brexit (Zürich, Schulthess Juristische Medien AG, 2018), 167. A Vincze and N Chronowski, ‘Önazonosság és európai integráció – az Alkotmánybíróság az identitáskeresés útján’ (2017) 72 Jogtudományi Közlöny, 117. A Vincze and N Chronowski, Magyar alkotmányosság az európai integrációban, 3rd edn, (Budapest, HVG-ORAC, 2018). J Weiler, ‘The Community System: The Dual Character of Supranationalism’ in FG Jacobs (ed), Yearbook of European Law (Oxford, Oxford University Press, 1981), 275.

460

19 Malta The Assimilation of the EU’s Economic, Fiscal and Monetary Governance Acquis in the Maltese Legal Framework JOSEPH BUGEJA

Abstract: The main provisions of the Maastricht Treaty on economic and monetary governance, and subsequent substantive developments on economic, fiscal and monetary governance at a European Union level, have not been reflected in the Constitution of Malta. The latter contains only general provisions on matters pertaining to public finance, which are still in their original form since Malta achieved independence from Great Britain on 21 September 1964. Rather than amending the Constitution to incorporate the key developments and commitments of the acquis communautaire on EMU, the Maltese House of Representatives enacted a number of special laws with a view to give effect to the EU’s economic, fiscal and monetary governance rules, most notably through enactment of the Fiscal Responsibility Act. Malta is also a signatory of intergovernmental instruments in the field of fiscal stability. The EU’s economic, fiscal and monetary governance is not entrenched in the Maltese Constitution. Nevertheless, Malta’s accession Treaty and other existing or future EU acts (1) are binding on Malta, (2) form part of its domestic law, and (3) are directly applicable, to the extent that EU law is supreme over incompatible Maltese national law. They enjoy this effect based on Article 3 of the European Union Act. This chapter will comment on the main characteristics of the Maltese Constitution while seeking to identify special laws of an economic, fiscal or monetary character, most of which have been enacted to transpose or otherwise to give effect to the EU acquis on economic, fiscal and monetary governance. Key words: Budgetary process, characteristics of the Maltese Constitution, constitutional order of Malta, Constitutional Court, direct applicability of EU law, Economic and Monetary Union, European Union Act, EMU related special laws, Fiscal Responsibility Act, Fiscal Advisory Council, ratification of Treaties and international obligations.

462  Joseph Bugeja

I.  Main Characteristics and Constitutional Culture The Constitution of Malta sets out a framework for a parliamentary democracy modelled on the Westminster model. Between 21 September 1964 when Malta achieved independence and 12 December 1974, the British monarch was Malta’s head of state. However, following the republican constitutional amendments, Malta became a republic on 13 December 1974, whereby a president replaced the governor-general as the head of state. Malta is a democratic republic ‘founded on work and on respect for the fundamental rights and freedoms of the individual’.1 The Constitution is the supreme law of the land to the extent that ‘if any other law is inconsistent with this Constitution, this Constitution shall prevail and the other law shall, to the extent of the inconsistency, be void’.2 The idea of a supreme Constitution is ingrained in the jurisprudence of Maltese courts, which tend to favour constitutional supremacy, not parliamentary supremacy.3 Besides Chapter 2 of the Constitution enshrining the ‘Declaration of Principles’ and Chapter 4 enshrining ‘The Fundamental Rights and Freedoms of the Individual’, the Constitution establishes the office of the president, the parliament, the executive and the judiciary. The sources of Maltese constitutional law include (1) the text of the Constitution, (2) laws dealing with constitutional matters, (3) European Union (EU) law including the European Union Act, (4) treaties incorporated into Maltese law through acts of parliament, such as the European Convention on Human Rights and Fundamental Freedoms (ECHR), (5) constitutional conventions and practices, (6) jurisprudence of national and international courts/tribunals, including the decisions of the Civil Court First Hall (constitutional jurisdiction)/the Constitutional Court, (7) electoral laws, (8) parliamentary records and (9) authors on constitutional law. Presently, there are three political parties represented in the House of Representatives: the Labour Party, which is currently in government, the Nationalist Party and the Democratic Party. The opposition is led by the leader of the Nationalist Party. Parliament’s legislative power has to be exercised in conformity with ‘full respect for human rights, generally accepted principles of international law and Malta’s international and regional obligations in particular those assumed by the treaty on accession to the European Union signed in Athens on the 16 April 2003’.4 All bills presented to the House of Representatives, barring constitutional amendments, are decided on through a simple majority, namely, by a majority of the votes of the members of parliament present and voting, save where it is otherwise provided in the Constitution. Nevertheless, parliament may change any provision of the Constitution as per the procedure provided in Article 66 of the Constitution. Parliament is supreme within the context of the supremacy of the Constitution. Thus, while parliament can adopt and amend ordinary legislation, certain constitutional provisions are entrenched and cannot be amended in the same manner as ordinary legislation.5 According to Article 66, in certain instances, a constitutional amendment requires a two-thirds majority of all members of the House of Representatives. These instances include the provisions on the fundamental rights and freedoms of the individual,6 1 Art 1, Constitution of Malta. 2 Art 6, ibid. 3 The Maltese Constitutional Court in Carmel Demicoli v l-Onorevoli Speaker tal-Kamra tad-Deputati, l-Onorevoli Prim Ministru u l-Ministru tal-Gustizzja u Affarijiet tal-Parlament, fil-kwalita’ taghhom premessa u in rapprezentanza ta’ l-istess Kamra tad-Deputati, Qorti Kostituzzjonali, 13 October 1986, affirmed that the Constitution of Malta is the highest law of the land (“l-ghola ligi tal-pajjiz”). 4 Art 65, Constitution of Malta. 5 David Joseph Attard, The Maltese Legal System, Vol 1, (Malta, Malta University Press, 2012) 31. 6 Arts 32–48, Constitution of Malta.

Malta  463 certain provisions on the judiciary7 and Chapter IX of the Constitution. The latter includes provisions on the Consolidated Fund,8 the authorisation of expenditure from the Consolidated Fund,9 the authorisation of expenditure before appropriation,10 the Contingencies Fund11 and public debt.12 Bills are passed by the House of Representatives, assented to by the president and published in the Government Gazette in order to come into force. The Constitution restricts the adoption of certain financial measures. In particular, for the House of Representatives to pass any bill, including an amendment to a bill, which in the opinion of the person presiding the House or Representatives makes provision: i. ii. iii. iv.

for the imposition or increase of any tax, or for the imposition or increase of any charge on the revenues or other funds of Malta, or to alter any such charge otherwise than by reducing it or for compounding, or for remitting any debt due to Malta,

this bill will require ad validitatem the recommendations of the president signified by a minister.13 This is based on the principle of no taxation without representation. Executive authority is vested in the president and subordinated officers. Parliament may confer functions on persons or authorities other than the president.14 The Cabinet of Ministers ‘shall have the general direction and control of the Government of Malta and shall be collectively responsible therefor to Parliament’.15 The president shall appoint a prime minister – the member of the House of Representatives who, in his judgment, is best able to command the support of a majority of the members of that House and shall, acting in accordance with the advice of the Prime Minister, appoint the other Ministers from among the members of the House of Representatives.16

The president, upon the prime minister’s advice, may in writing, assign to the prime minister and the cabinet ministers responsibility for any business of the government of Malta.17 In effect, the assignment of the ministers’ portfolios is the prerogative of the prime minister as primus inter pares, with the president’s signature of the said appointments/portfolios being a mere formality. Malta’s judicial system comprises superior courts, inferior courts18 and judicial/quasi-judicial tribunals/boards. The Code of Organisation and Civil Procedure19 and the Criminal Code20 define the constitution and jurisdiction of the Superior Courts and the Court of Magistrates. Tribunals/boards, such as the Land Arbitration Board and the Public Contracts Review Board, are established by special laws. The Constitution refers both to superior and inferior courts that have such powers and jurisdiction as may be provided by law in Malta.

7 Arts

95–100, ibid. 102(1), ibid. 9 Art 103, ibid. 10 Art 104, ibid. 11 Art 105, ibid. 12 Art 106, ibid. 13 Art 73, ibid. 14 Art 78, ibid. 15 Art 79, ibid. 16 Art 80, ibid. 17 Art 82(1), ibid. 18 Art 95, 99, ibid. 19 Ch 12, Laws of Malta. 20 Ch 9, Laws of Malta. 8 Art

464  Joseph Bugeja The Superior Courts comprise the Civil Court, the Court of Appeal and the Constitutional Court. The judges of the Superior Courts are appointed by the President, ‘acting in accordance with the advice of the Prime Minister’.21 The First Hall of the Civil Court, which is a first instance court, also has original jurisdiction in all constitutional matters and matters pertaining to human rights. In the landmark judgment Gustavo Debono v Housing Secretary,22 the First Hall of the Civil Court decided that ‘constitutional cases are to be heard by the Civil Court, First Hall, in its Constitutional jurisdiction and by the Constitutional Court, with expediency. Other cases of less importance fell to be determined by other courts’.23 The proceedings before the Civil Court First Hall in its constitutional competence under Article 46(1) of the Constitution and proceedings before the Constitutional Court in the cases referred to in Article 95(2) of the Constitution of Malta are instituted by plaintiff ’s application.24 Matters pertaining to EU law are heard by the First Hall Civil Court with an appeal to be filed in front of the Court of Appeal. Decisions on constitutional issues which are heard by the First Hall Civil Court (Constitutional Jurisdiction)25 may be appealed to the Constitutional Court. In the instances provided by the Constitution, constitutional cases are heard by the Constitutional Court, which is composed of three judges, ‘as could, in accordance with any law for the time being in force in Malta, compose the Court of Appeal, shall be known as the Constitutional Court’.26 The Maltese Constitutional Court has jurisdiction to hear and decide a number of questions and appeals, including appeals from decisions of any court of original jurisdiction in Malta with respect to the ‘interpretation of this Constitution’,27 and ‘appeals from decisions of any court of original jurisdiction in Malta on questions as to the validity of laws other than those which may fall under article 46 of the Constitution’.28 Article 46 of the Constitution covers the enforcement of protective measures with respect to fundamental human rights. Therefore, under Article 95 of the Constitution, the Constitutional Court has a dual jurisdiction. That is, first, it has an original jurisdiction as a court of first and last instance, whereby due to the urgency of the matter it hears and decides the case at hand. Such cases include matters arising under Article 63 of the Constitution on whether a person is validly elected as a member of the House. Second, it is an

21 Art 96(1), Constitution of Malta. 22 First Hall Civil Court, Decision of 27 June 1973. 23 Attard, The Maltese Legal System, Vol 1, 134. 24 Subsidiary Legislation 12.09, Court Practice and Procedure and Good Order Rules, Art 2. 25 The First Hall of the Civil Court takes cognisance of all causes of a civil nature which exceed the jurisdiction of the Court of Magistrates, including all applications for redress in respect of alleged violations of human rights as protected by the Constitution and the European Convention of Human Rights. 26 Art 95(2), Constitution of Malta; the Constitutional Court has jurisdiction to hear and determine: ‘(a) such questions as are referred to in article 63 of the Constitution; (b) any reference made to it in accordance with article 56 of this Constitution and any matter referred to it in accordance with any law relating to the election of members of the House of Representatives; (c) appeals from decisions of the Civil Court, First Hall, under article 46 of this Constitution; (d) appeals from decisions of any court of original jurisdiction in Malta as to the interpretation of this Constitution other than those which may fall under article 46 of this Constitution; (e) appeals from decisions of any court of original jurisdiction in Malta on questions as to the validity of laws other than those which may fall under article 46 of this Constitution; and (f) any question decided by a court of original jurisdiction in Malta together with any of the questions referred to in the foregoing paragraphs of this sub-article on which an appeal has been made to the Constitutional Court: Provided that nothing in this paragraph shall preclude an appeal being brought separately before the Court of Appeal in accordance with any law for the time being in force in Malta.’

27 Art 28 Art

95(2)(d), Constitution of Malta. 95(2)(e), ibid.

Malta  465 appellate court and as such, it hears appeals on decisions of the First Hall Civil Court. Such cases include appeals on (1) decisions relating to applications for redress in respect of alleged violations of human rights, as protected by the Constitution and the ECHR, and (2) decisions of any court of original jurisdiction on questions relating to the interpretation of the Constitution and the validity of laws. The jurisdiction of the Constitutional Court is entrenched and cannot be diminished. In cases which are referred to in Article 95(2)(c), (d), (e) and (f) of the Constitution, the application before the Constitutional Court shall ‘state clearly and concisely the circumstances out of which the appeal arises, the reasons of appeal and the prayer for the reversal or a specific variation of the decision appealed from’.29 In matters concerning Article 95(2)(c), (d), (e), (f) of the Constitution, the Constitutional Court has an appellate jurisdiction. The Constitutional Court has a wide-ranging constitutional jurisdiction under Article 95(2)(f) of the Constitution. In particular, it can decide on any question decided by a court of original jurisdiction in Malta together with any of the questions referred in the foregoing paragraphs of Article 95(1) of the Constitution on which an appeal has been made to the Constitutional Court. Article 95(2)(f) of the Constitution states that ‘nothing is this paragraph shall preclude an appeal being brought separately before the Court of Appeal in accordance with any law for the time being in force in Malta’. There is still no jurisprudence by the Maltese Superior Courts on issues pertaining to the Economic and Monetary Union (EMU). Nor are any provisions on the EMU entrenched in the Constitution. The only provisions on financial matters in the Constitution are envisaged in Chapter IX on ‘Finance’, which formed part of the Constitution since its coming into force in 1964. Only a few minor amendments were effected in 1974 and 1997 concerning the remuneration of certain offices and the establishment of the auditor’s general office.

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  Ratification of Treaties Act First, the Ratification of Treaties Act, of 1983, provides for the ratification of international agreements concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation; and any reference to the ratification of a treaty shall include a reference to accession to such treaty and to any other act or manner in which such treaty may be brought into force.30

The Ratification of Treaties Act falls under the general definition of constitutional law as the law which regulates the function and composition of the three organs of state, the relationship between them and their relationship with private individuals. It also provides certain formal



29 Art

3(4), Subsidiary Legislation 12.09, Court Practice and Procedure and Good Order Rules. of Treaties Act, Art 2, Ch 304, Laws of Malta.

30 Ratification

466  Joseph Bugeja domestic requirements when Malta becomes a party to a treaty involving any of the following effects or concerns: (a) the status of Malta under international law or the maintenance or support of such status, or (b) the security of Malta, its sovereignty, independence, unity or territorial integrity, or (c) the relationship of Malta with any multinational organisation, agency, association or similar body. In case of such a treaty, including where under (c) it contains any provision which is to become, or to be enforceable as, part of the law of Malta, an Act of Parliament has to be enacted.31 In any other case, the ratification of a treaty is performed through a resolution of the House of Representatives.32 The Act provides that ‘no provision of a treaty shall become, or be enforceable as part of the law of Malta except by an Act of Parliament’.33 To this effect, namely for EU law to be enforceable in Malta, the European Union Act had to be enacted to provide for Malta’s accession to the EU. In the event of Malta’s cession from a treaty, the Ratification of Treaties Act provides that the Foreign Affairs Minister shall inform the House of Representatives and give reasons for that cession. This is to happen at the earliest opportunity and in no case later than the second sitting of the House of Representatives after the expiration of one month from the date of the denunciation or other act whereby Malta ceases or will cease to be a party to a treaty.

B.  The European Union Act The European Union Act34 was enacted to provide for Malta’s accession to the EU and to empower the government of Malta to ratify the Treaty of Accession, giving the accession legal effect in the domestic order. The European Union Act itself states that for the purposes of the Ratification of Treaties Act, the government of Malta is authorised to ratify the Accession Treaty35 signed on 16 April 2003 in Athens. It includes any other treaty, agreement or protocol to which Malta became a party or which became applicable to Malta in virtue thereof. It was adopted as an Act of Parliament on 16 July 2003. Article 3 of the European Union Act states that the ‘Treaty and existing future acts’, which are adopted by the EU are binding on Malta and shall form part of its domestic law. Furthermore, it outlines that EU law is supreme over incompatible domestic law, in which case the effected domestic law shall be without legal effect and unenforceable.36 The European Union Act recognises the direct effect of those Community law provisions, that according to Community law, are directly effective in Malta and to recognise their supremacy over all forms of national law as well as to impose

31 Art

3(2)(a),Ratification of Treaties Act. 3(2)(b), ibid. 33 Art 3(3), ibid. 34 Ch 460, Laws of Malta. 35 Art 6, European Union Act. 36 Ch 460, Laws of Malta. 32 Art

‘3.(1) From the First day of May 2004, the Treaty and existing and future acts adopted by the European Union shall be binding on Malta and shall be part of the domestic law thereof under the conditions laid down in the Treaty. (2) Any provision of any law which from the said date is incompatible with Malta’s obligations under the Treaty or which derogates from any right given to any person by or under the Treaty shall to the extent that such law is incompatible with such obligations or to the extent that it derogates from such rights be without effect and unenforceable.’

Malta  467 an obligation on all Maltese courts and adjudicating authorities to either follow the case law of the Community courts when applying Community law or alternatively to refer the pertinent legal questions to the Community courts via the preliminary reference procedure.37

Therefore, in case of a conflict between Maltese law and EU law, it is EU law which prevails. Yet, this provision applies only to Maltese ordinary law. Should there be a conflict between the Constitution and European Union Law, that would be another matter for one cannot presume that Parliament can amend the Constitution except in the way expressly set out in the Constitution itself. According to this interpretation, it is the Constitution which prevails … As for the supremacy of European Union law over the Constitution, although the European Union Act – which is an ordinary law – cannot amend the Constitution as the latter is the supreme law of Malta, it should still be pointed out that this position is at variance with the established case law of the European Court of Justice which has reiterated that Community law is supreme even over the constitutions of Member States. Hence, if a conflict should arise Maltese courts would somehow have to reconcile our position with this established Community doctrine to avert a situation where Malta would be in breach of Community Law.38

Furthermore, in order to give effect to Article 3 of the European Union Act, the prime minister or, and, any designated minister or authority may by order make provision: a) b)

for the purpose of implementing any obligation of Malta, or enabling any such obligations to be implemented, or of enabling any rights enjoyed or to be enjoyed by Malta under or by virtue of the Treaty to be exercised; or for the purpose of dealing with matters arising out of or related to any such obligation or rights or the coming into force, or the operation from time to time of subarticle (1);

and in the exercise of any power or duty under any law, including any power to give directions or to legislate by means of orders, rules, regulations or other subordinate instrument, the person entrusted with the power or duty may have regard to the objects of the European Union and of the Communities and to any such obligation or rights as aforesaid: Provided that with regard to treaties and international conventions which Malta may accede to as Member State of the European Union, and treaties and international conventions which Malta is bound to ratify in its own name or on behalf of the European Community by virtue of its membership within the European Union, these shall come into force one month following their being submitted in order to be discussed by the Standing Committee on Foreign and European Affairs.39

Therefore, the prime minister may resort to delegated legislation through subsidiary legislation so that there are no inconsistencies between EU law and Maltese law. Under Article 3 of the European Union Act, EU law is directly applicable to Malta, given that Malta’s accession to the EU was ratified through an Act of Parliament, similar to Malta’s accession to the International Monetary Fund and the European Bank for Reconstruction and Development.40 The government of Malta was authorised to ratify the Treaty by the Ratification of Treaties Act.41

37 Attard, The Maltese Legal System, 86–87. 38 Attard, The Maltese Legal System, Vol II, Pt A, (Malta, Malta University Press, 2015) 88–89. 39 Art 4(2) European Union Act. 40 In other instances, and by way of comparison, Malta’s accession to the World Trade Organisation has been effected through a Resolution of the House of Representatives and not through an Act of Parliament and therefore World Trade Organisation law is not directly applicable in Malta. 41 Art 6 European Union Act.

468  Joseph Bugeja Besides the European Union Act, Article 65 of the Constitution also provides an important constitutional safeguard, namely that parliament must legislate in conformity with Malta’s international and regional obligations, specifically the international obligations assumed by Malta under Treaty of Accession to the EU. Malta joined the EU on 1 May 2004 and the Treaty became binding on the same day through the European Union Act. To this effect, the Constitution of Malta was amended by means of Article 65(1) to reflect the provisions of the European Union Act.42 Namely, that Subject to the provisions of this Constitution, Parliament may make laws for the peace, order and good government of Malta in conformity with full respect for human right, generally accepted principles of international law and Malta’s international and regional obligations in particular those assumed by the treaty of accession to the European Union signed in Athens on the 16th April 2003.

It appears that through this provision the Constitution is complementing the European Union Act in ensuring that all legislation passed in Malta is in line with the EU legal order. This makes it easier for the Maltese courts to give priority to EU law in case of conflicting legislation. In fact, in a landmark judgment of the Constitutional Court,43 the Court held that Article 65 of the Constitution is effectively giving constitutional status to the obligations that were assumed by Malta in the EU Accession Treaty and ergo a law which infringes the obligations assumed under the Accession Treaty is effectively unconstitutional. The Court added that it is the Constitutional Court which has the final say to rule on the validity or otherwise of a law which has been duly enacted by parliament. This was because parliament’s power to enact laws emanates from the Constitution, and the Constitutional Court has the competence to interpret the Constitution and to state the limits of parliament’s powers under the Constitution.44 Yet, Article 65(1) of the Constitution is not entrenched by Article 66 of the Constitution, which provides for special procedures such as a two-thirds majority of the House of Representatives to amend certain parts of the Constitution. The effect of this is that Article 65(1) of the Constitution can be amended like any other provision of the law. Therefore, it is possible that a government amends the Constitution with an absolute majority45 given that a two-thirds majority is not required to change Article 65(1) of the Constitution.46 Therefore, while parliament has to enact laws in compliance with Malta’s international and regional obligations, this obligation would have been better safeguarded if it had been placed under Article 66 of the Constitution, which provides that a bill for an Act of Parliament under this article shall not be passed in the House of Representatives unless at the final voting thereon in that House it is supported by the votes of not less than two-thirds of all members of the House.

Therefore if Article 65(1) of the Constitution was also included in Article 66 of the Constitution, it would prove more difficult for a government to alter it because it would require the votes

42 Act V of 2003. 43 Qorti Kostituzzjonali, Vodafone Malta Ltd; u Mobisle Communications Ltd (C-24655) li b’digriet tad-19 ta’ Settembru 2005 thalliet tidhol fil-kawza v L-Avukat Generali; il-Kontrollur tad-Dwana; il-Ministru tal-Finanzi; l-Awtorita’ ta’ Malta ghall-Komunikazzjoni, Appelli Civili Numru 361/2005/1, 3 ta’ Marzu 2014, 11. 44 Ibid, 12. 45 To amend the Constitution, there must be at least an absolute majority of the members of the House of Representatives. An absolute majority is calculated on the total number of members of parliament in a given legislature, irrespective of whether they are present or not when voting takes place. 46 Ivan Sammut, ‘The EU and Maltese Legal Orders: What kind of marriage between them?’, www.um.edu.mt/europeanstudies/books/CD_CSP5/pdf/isammut.pdf, 103.

Malta  469 of not less than two-thirds of all the members of the House of Representatives. Given that the Constitution, and not parliament, is the supreme law of the land through Articles 6 and 65(1) of the Constitution, in case any other law is inconsistent with the Constitution, the Constitution shall prevail and the other law shall, to the extent of the inconsistency, be void.47

C.  Euro Adoption Act The House of Representatives enacted the Euro Adoption Act on 29 September 2006,48 in order to provide for measures connected with and ancillary to the adoption of the euro49 as the currency unit of Malta. Through this Act, the Minister of Finance was empowered to adopt regulations for the adoption of the euro, including the implementation of the 2003 EU Accession Treaty,50 the statute of the European System of Central Banks and of the European Central Bank annexed to the EU Treaties. These powers cover measures that are required in order to comply with any regulation, directive, decision, recommendation or other act or direction of the EU in respect of the euro. These powers include the implementation of any international obligation of Malta or any international obligation, which Malta intends to assume in respect of the euro and to provide on any other matter related to the implementation, regulation or supervision of euro adoption.51 In this respect, the primary objective of the Central Bank of Malta is to maintain price stability. The Central Bank is also tasked to support the general economic policies of the EU to contribute to the achievement of the EU’s objectives as per Article 3 TEU and to act in accordance with the principles set out in Article 119 TFEU.52 The functions of the Central Bank include the implementation of the monetary policy, the holding and management of financial assets, to ensure the financial system’s stability, the formulation and the implementation of macro-prudential policy, the promotion of a sound and efficient payment system,53 the compilation and publication of statistics, the provision for the circulation of euro banknotes and advising government on financial and economic matters. In line with

47 Art 6, Constitution of Malta. 48 Euro Adoption Act, Art 2, Ch 485 Laws of Malta. 49 The word ‘euro’ has been referred to as ‘the currency unit of the European Union as defined in Council Regulation (EC) 974/98 of the 3 May 1998 on the introduction of the euro’. 50 The Treaty is defined in Ch 460 of the Laws of Malta as ‘Treaty between the Kingdom of Belgium, the Kingdom of Denmark, the Federal Republic of Germany, the Hellenic Republic, the Kingdom of Spain, the French Republic, Ireland, the Italian Republic, the Grand Duchy of Luxembourg, the Kingdom of the Netherlands, the Republic of Austria, the Portuguese Republic, the Republic of Finland, the Kingdom of Sweden, the United Kingdom of Great Britain and Northern Ireland (Member States of the European Union) and the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic, concerning the accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic to the European Union, signed in Athens on the 16th day of April, 2003, of which an electronic copy of the Maltese and English texts was laid on the Table of the House on the 23rd day of June, 2003 (and which shall be published in electronic format in the Maltese and English text as a Government publication) and includes any other treaty, agreement or protocol to which Malta became a party or which became applicable to Malta in virtue thereof.’ 51 Euro Adoption Act, Ch 485 Laws of Malta, Art 3 (vi), (vii), (viii). 52 Central Bank of Malta Act, Ch 204, Laws of Malta, Art 4. 53 The Central Bank was appointed as competent authority for the purposes of Art 9 of Regulation (EC) No 924/2009 of 16 September 2009 on cross-border payments in the Community and repealing Regulation (EC) No 2560/2001, and shall be responsible to monitor compliance with this Regulation and to take all the necessary measures to ensure such compliance (see Art 34 A of the Central Bank of Malta Act).

470  Joseph Bugeja the TEU, TFEU and the central bank’s statute, neither the bank, nor any member of the board, nor any official of the bank, ‘when exercising any function, duty or power under this Act, shall seek or take instructions from the Government or any other body’.54 Furthermore, it is the duty of the central bank to keep the minister of finance informed of the bank’s policy provided that (1) this does not affect the independence of the members of the bank’s decision making bodies and (2) that the special status of the governor in his capacity as member of the Governing Council and the General Council of the European Central Bank is fully respected.55 This is intended to ensure the much needed independence of the central bank.

D.  Participation and Guarantees under the European Financial Stability Facility Act Through a schedule annexed to this act, the Maltese government incorporated into domestic law the European Financial Stability Facility (EFSF) framework.56 This act empowers the government to participate in the EFSF, both as a shareholder in the subscribed share capital and authorised share capital, and as a director on the EFSF board of directors. This participation enables the provision of financing to EU Member States in financial difficulties though raising capital. Such capital is raised by issuing financial instruments or entering into financial arrangements with the shareholders or third parties and as approved by the House of Representatives.57 Any financial instrument or financial arrangement for EU Member States in financial difficulties shall be guaranteed by the Maltese government in terms of the EFSF Framework Agreement, provided that the guarantee issued by the Maltese government shall not exceed the aggregate of 704.33 million euros.58 That guarantee ‘may only be done in such manner and for such purpose as the House of Representatives may by resolution determine’.59 As per annex 2 (contribution key) of this act, Malta’s ECB capital subscription key in percentage terms is 0.0632, with the contribution key being 0.090555440132394 per cent.

E.  Participation and Granting of Financial Stability Support under the European Stability Mechanism Act The House of Representatives approved this act to authorise the government to participate in the European Stability Mechanism (ESM) as a shareholder in the authorised share capital, Governor and an alternate Governor within the Board of Governors, and as Director and alternate Director on the Board of Directors, in accordance with

54 Central Bank of Malta Act, Ch 204, Laws of Malta, Art 5(2). 55 Art 29(b)(c), ibid. 56 Ch 502 of the Laws of Malta refers to the ‘Intercreditor Agreement’, namely the agreement entered into in Brussels on the 8 May 2010, between the eurozone Member States and the European Commission regarding pooled bilateral loans by eurozone Member States to the Hellenic Republic. The Act also refers to the ‘Loan Facility Agreement’, namely the agreement entered into in Brussels on the 8 May 2010, which was approved by the eurozone Member States in pursuance of a decision of the Council of the European Union providing for the lending of money to the Hellenic Republic, as amended by the agreements entered into in Brussels on the 14 June 2011, 27 February 2012 and 19 December 2012. Government borrowing and granting of loans to the Hellenic Republic Act, Ch 502 of the Laws of Malta, Art 3(1). 57 Ibid, Art 3. 58 Ibid, Art 4. 59 Ibid, Art 4(2).

Malta  471 the terms and conditions set out in the Treaty as may be amended from time to time, for the purposes identified under sub-article (2).60

The ESM is intended to provide stability support to its Member States that are experiencing or are threatened with severe financial problems. To this effect, Any participation and stability assistance granted by the Government of Malta beyond the purpose specified under sub-article (2) of Article 3, may only be done in such as manner and for such purpose as the House of Representatives may be resolution determine.61

This act authorised the Maltese government to ratify the Treaty establishing the European Stability Mechanism.62 Malta subscribed to 5,117 shares of the authorised capital stock of the ESM, translating into a capital subscription of 511,700,000 euros. Furthermore, the person appointed by the Maltese government to represent it on the governing board and the administrative body of the ESM shall appear at least once a year for the scrutiny of the Public Accounts Committee in connection with his rendering of accounts of the EFSF and the ESM, to ensure that his activity is in line with the duties and with the obligations taken by Malta.63

III.  Constitutional Obstacles to EMU Integration In its White Paper on the Future of Europe64 the European Commission committed itself to contribute to the debate on further EMU integration by issuing a number of reflection papers, including one on deepening the EMU on the basis of the Five Presidents’ Report of June 2015. This commitment materialised through publication of the ‘Reflection Paper on the deepening of the economic and monetary union’,65 proposing a way forward for deepening and completing the EMU until 2025. In the case of Malta, with respect to EU membership, the Nationalist Party, then in government, favoured EU membership, whilst the Malta Labour Party was against it. Therefore, on 8 March 2004, the government called a referendum on whether Malta should join the EU. The result was that 143,094 voted in favour of membership while 123,628 voted against: 52 per cent in favour and 48 per cent against. Following the referendum, the government called a general election within five weeks of the result of the referendum, namely on 12 April 2003, where the favourable result of the referendum was reconfirmed. As a result, Malta joined the EU on 1 May 2004. Today, the political position on EU membership has changed; the Labour Party, which was originally against EU membership, is now in favour. Therefore, all of the main political parties in Malta are today in favour of EU membership, which augurs well for further EMU integration. In the absence of any national debate on Malta’s stance with respect to the deepening and completing the EMU, it remains to be seen what Malta’s policy will be with respect to the proposals of the European Commission, as indicated in the Reflection Paper, namely the completion of the Banking Union and the Capital Markets Union until the end of 2019 and completing EMU

60 Ch 523, Laws of Malta, 17 July 2012, Art 3(1). 61 Ibid, Art 5. 62 This Treaty was signed on the 2 February 2012 and annexed as Sch 3 to Ch 523 of the Laws of Malta. 63 Ibid, Laws of Malta, Art 7. 64 European Commission, ‘White Paper on the Future of Europe – Reflections and scenarios for the EU27 by 2025’, COM (2017) 2025, 26. 65 European Commission, ‘Reflection Paper on the deepening of the economic and monetary union’, COM (2017) 291.

472  Joseph Bugeja during the second phase running from 2020 to 2025. Constitutionally, there are no restrictions to further increasing EU competences in this field. Through the recent proposal for a Council Regulation on the establishment of the European Monetary Fund (EMF), the Commission is proposing that the EMF succeeds the ESM with respect to all the rights and obligations, with a view to eventually replace it. Under that proposal the EMF shall submit ‘on an annual basis to the European Parliament, to the Council and to the Commission a report on the execution of its tasks, together with its annual accounts and its financial statement’66 and it has to concurrently forward the said report to the national parliaments of the EMF and of the participating EU Member States.67 Therefore, the national parliaments of the EU Member States shall be engaged. It remains to be seen what policy position the Maltese government will adopt with respect to the EMF. If the EMF is eventually adopted, this will entail an Act of Parliament as per the Ratification of Treaties Act so that the EMF law will be directly applicable in Malta. It may be the case that, as long as the political will exists for the realisation of the EMF, the Maltese legislator will proceed to ratify the EMF through an Act of Parliament, along the lines of Malta’s accession to the International Monetary Fund. In this sense, as already stated, Article 65(1) of the Constitution obliges the parliament to enact laws with respect to Malta’s international and regional obligations, particularly the obligations arising and assumed under Malta’s Accession Treaty to the EU. Provided that Malta’s interests, as a small state, are adequately safeguarded, it is not envisaged that any transposition of the funds and functions of the EMS in the EU legal framework will pose particular problems. Yet, any attempt to give veto powers to the larger EU Member States, such as a qualified majority of 85 per cent of the votes cast, is likely to be opposed by Malta, being one of the smaller EU Member States. Besides the proposal for the EMF, the European Commission has also aired its views on the post of a European Minister of Economy and Finance with a view to achieving ‘more coherent, effective and accountable economic governance of the European Union’.68 It may be too early to envisage whether the position of European Minister of Economy and Finance will encroach on the rights presently enjoyed by the EU Member States’ ministers of economy and finance, and/ or whether the decisions of the European Minister of Economy and Finance will prevail over those of the EU Member States’ ministers of economy and finance. The European Parliament has resolved that the European Minister of Economy and Finance shall be ‘fully democratically accountable and equipped with all necessary means and capacities to apply and enforce the existing economic governance framework and to optimise the development of the euro area’.69 Furthermore, the tasks he has to achieve must be ‘in cooperation with the ministers of finance of the euro area Member States’.70 Thus, the European Minister of Economy and Finance, although holding a supranational post, has to perform his/her duties in cooperation and coordination with EU Member States’ ministers of the economy and finance. In Malta, first, the finance and economy portfolios fall

66 Art 5(2), European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’, COM (2017) 827. 67 Art 6(1), ibid. 68 Point 4, European Commission, ‘Communication on a European Minister of Economy and Finance’, COM (2017) 823. 69 Art 1(iii), European Parliament, Resolution of 16 February 2017 on budgetary capacity for the euro area (2015/2344(INI)), Budgetary Capacity in the Euro area, P8_ TA(2017)0050. 70 Ibid.

Malta  473 under separate ministries. Second, the roles, functions and powers of the minister of finance in particular, touch on a number of financial laws. To this effect, if political determination exists to create the new position of a European Minister of Economy and Finance, and if the powers of the European Minister of Economy and Finance encroach on the powers of Malta’s minister of finance, this may entail an amendment to the Constitution and a plethora of ordinary laws, which recognise and empower the role, functions and powers of the minister responsible for finance. This new position of European Minister of Economy and Finance could also affect the iter of the budgetary procedures in parliament, thus entailing constitutional amendments. Finally, the EU Commission also proposed a directive to lay down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the EU Member States.71 This Council directive has not yet come into force. Given that this directive is intended to enhance the fiscal responsibility of the EU Member States, it remains to be seen whether the Maltese legislator will opt to transpose this directive through amendments of the Fiscal Responsibility Act or otherwise. The proposed directive COM (2017) 824 sets out the obligation to establish a national framework of binding and permanent country-specific numerical fiscal rules. Rather than conflicting with any constitutional rules, this proposed directive may pose a policy issue for the government on whether it intends to give more independence, impartiality and permanence to the present Fiscal Advisory Council. Part II (Fiscal Rules) refers to Articles 3 and 4 of the TSCG requiring the Government to ensure Council already has quite an extensive remit on budgetary and fiscal measures.

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law Malta as a parliamentary democracy has followed the idea of constitutionalism or limited governmental power and safeguards against its possible abuse, with protection for the fundamental rights and freedoms of the individual vis-à-vis the State and independent Courts to secure that protection. By its very nature the Constitution is supreme over the government.72

The Constitution does not contain any provisions on EMU membership or any EMU-related legislation. So far, no constitutional amendments exist to reflect the EU’s economic, fiscal and monetary developments or to include elements of economic, fiscal and monetary governance as a result of Malta’s accession to the Treaty on Stability Coordination and Governance (TSCG). Rather, the corpus of law on economic, fiscal and monetary governance has been assimilated to ordinary legislation through a number of special laws enacted by the House of Representatives. Malta’s participation in the TSCG eventually became part of the ordinary law on 1 July 2013 as a result of ratification of the TSCG by the House of Representatives.73 The TSCG was ratified by a unanimous Resolution of the House of Representatives on 11 June 2013.

71 European Commission, ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’, COM (2017) 824. 72 John J Cremona, The Maltese Constitution and Constitutional History since 1813, 2nd edn (San Gwann, Malta, Publishers Enterprises Group Ltd, 1997) 77. 73 Ratification of Treaties Act, Ch 304, Laws of Malta.

474  Joseph Bugeja On 1 January 2008, Malta adopted the euro as its currency. Therefore, all primary and secondary legislation had to be amended by legal notices under the Euro Adoption Act in order to change the reference from the Maltese lira to the euro. The Euro Adoption Act granted the vires to the prime minister to change all legislation in Malta to reflect the euro currency and empowered the finance minister to make regulations in terms of Council Regulation (EC) 974/98 concerning the introduction of the euro.74 As already noted, Chapter IX of the Constitution is dedicated to ‘Finance’. All state revenues and other raised or received money, such as grants by other governments, have to be paid into the Consolidated Fund and may only be withdrawn to meet the government’s expenditure needs in the manner prescribed by law.75 The Constitution sets out the requirements for withdrawing public funds from the Consolidated Fund in the following manner: i. if money is authorised by the Constitution, such as in the case of payment of salaries of the members of the judiciary; ii. any other law for the time being in force in Malta, namely when the authorisation is provided for in any special law(s); iii. when the money is authorised by an Appropriation Act; and iv. in the case of authorisation of expenditure before appropriation under Article 104 of the Constitution. The House of Representatives controls public finances and approves financial forecasts. This control culminates in the Appropriation Act authorising government expenditure as per the budget forecasts. No money may be withdrawn from the Consolidated Fund except for meeting government expenditure, which is charged on that fund by the Constitution or any other law, or where the use of the money has been authorised by an Appropriation Act or under Article 104 of the Constitution. Similarly no money may be withdrawn from any other fund unless authorised by law.76 The House of Representatives passes the Appropriation Act each year at the end of the financial estimates debate: Since any bill having financial implications can only be proposed by a recommendation from the President endorsed by a government Minister, the initiative of proposing laws relating to revenue and expenditure lies exclusively in the hands of the Executive.77

The Constitution sets stringent criteria for the authorisation of expenditure from the Consolidated Fund. In terms of Article 103(1) of the Constitution, the Finance Minister ‘shall cause to be prepared and laid before the House of Representatives before, or not later than thirty days after, the commencement of each financial year estimates78 of the revenues and expenditure of Malta 74 Attard, The Maltese Legal System, 90. 75 Art 102(1), Constitution of Malta. 76 Cremona, The Maltese Constitution and Constitutional History since 1813, 110–12. 77 Tonio Borg, A Commentary on the Constitution of Malta (Malta, Kite, 2016) 468. 78 Ibid, 469. With respect to Art 103 of the Constitution of Malta, Dr Borg states that: ‘This provision establishes the norm that the Financial Estimates have to be approved by the House in the form of an appropriation Bill. The Constitution imposes an obligation on the Minister responsible for Finance to present before the House, the Financial Estimates of revenue and expenditure not later than thirty days before the end of the financial year on 31 December of each year. [For a number of years after Independence, Malta followed the British system regarding the financial year, namely the period ending on 31 March of each year.] The practice has been for such Estimates to be presented around the third week of October, latest third week of November owing to the new obligation arising out of the 2012 EU Fiscal Compact and Economic Governance treaties which empowers the European Commission to exercise supervisory powers over budget measures by member states.’

Malta  475 for that year’. Furthermore, the financial estimates shall be prepared in the appropriation bill,79 which is intended to meet the lines of expenditure that are approved by the House of Representatives: The heads of expenditure contained in the estimates (other than the expenditure charged upon the Consolidated Fund by this Constitution or any other law for the time being in force in Malta) shall be included in a bill, to be known as an appropriation bill, providing for the issue from the Consolidated Fund of the sums necessary to meet that expenditure and the appropriation of those sums for the purposes specified therein.

The minister of finance is constitutionally required to submit the financial forecasts of the revenues and expenditure for the forthcoming financial year to the House of Representatives not later than 30 days after the commencement of each financial year. The heads of expenditure contained in the financial forecasts, other than the expenditure charged upon the Consolidated Fund, shall be included in the appropriation bill, providing for the issue from the Consolidated Fund of the sums necessary to meet that expenditure and for the appropriation of the sums as envisaged in the appropriation bill. If during a financial year, it is found that the amount appropriated by the Appropriation Act is insufficient or that a need has arisen for which no amount has been appropriated, then supplementary financial estimates showing the sums required or spent shall be laid before the House of Representatives and a supplementary appropriation bill is presented to the House of Representatives.80 The House of Representatives, except upon the recommendations of the president signified by a minister, shall not proceed upon any bill (including any amendment to a bill) that, in the opinion of the person presiding makes provision for any of the following purposes, that is to say, for imposing or increasing any tax, for imposing or increasing any charge on the revenues or other funds of Malta or for altering any such charge otherwise than by reducing it, or for compounding or remitting any debt due to Malta.81

Supplementary financial estimates may be presented to the House of Representatives, followed by a supplementary appropriation bill, if during a financial year82 it transpires: (a) that the amount appropriated by the Appropriation Act for any purpose is insufficient, or that a need has arisen for expenditure for a purpose for which no amount has been ­appropriated by that Act; or (b) that any moneys have been expended for any purpose in excess of the amount (if any) appropriated for the purpose by that Act.83 Article 104 of the Constitution contains a special provision under which the government can authorise expenditure without appropriation for a fixed period of time. In the event that the Appropriation Act has not been approved by the House of Representatives by the new financial year, the Minister of Finance has the power to authorise the withdrawal of money from the

79 Art 103(2), Constitution of Malta. 80 Art 103, ibid. 81 Art 73(a), ibid. 82 Art 2 of the Financial Year Act, Ch 282 of the Laws of Malta, provides that ‘For the purposes of the Constitution, and as provided by article 124 thereof, it is hereby prescribed that the 31st day of December shall be the date on which every financial year, subsequent to that ending on the 31st March, 1979, shall end.’ 83 Constitution of Malta, Art 103(3).

476  Joseph Bugeja Consolidated Fund to meet the government expenditure ‘until the expiration of four months from the beginning of that financial year or the coming into operation of the Act, whichever is the earlier’.84 This possibility for the Minister of Finance to withdraw money from the Consolidated Fund without being sanctioned by an Appropriation Act is certainly an exception to the rule that all withdrawals have to be authorised by the House of Representatives through an Appropriation Act. However, this is a constitutionally based exception meant to cater for extraordinary circumstances and aiming to ensure the viability of the government. In particular, This provision allows the Minister responsible for Finance, to continue withdrawing moneys from the Consolidated Fund for a period of four months even without any Appropriation Act. This usually occurs when Parliament is dissolved around the usual Budget time or for any other reason. So for instance, when the motion proposing that the House resolves itself into a Committee of Supply to discuss the Financial Estimates for the year 2013 was not approved by the House, it was possible for the business of Government to be carried on under this provision, until following a general election and the election of a new Parliament, the Appropriation Act was approved on 10 April 2013 just before the four month deadline.85

The House of Representatives may also provide for the establishment of a Contingencies Fund for ‘urgent and unforeseen need for expenditure for which no other provision exists, to make advances from that Fund to meet that need’.86 The Schedule (Article 13) annexed to the Public Finance Management Act87 regulates the operation of the Contingencies Fund. When any advance is made, the Minister for Finance shall present supplementary financial forecasts to the House of Representatives, followed by a supplementary appropriation bill ‘as soon as practicable for the purpose of replacing the amount so advanced’.88 Finally, the Constitution refers also to the public debt of Malta, which: … shall be a charge upon the Consolidated Fund and other public funds of Malta. (2) In this article references to the public debt of Malta include references to the interest on that debt, sinking fund payments and redemption moneys in respect of that debt and the costs, charges and expenses incidental to the management of that debt.89

Therefore, even though the Constitution does not specifically enshrine any EU economic, fiscal or monetary governance, it provides the elementary basis pertaining to the government’s budget and finances. The executive, in Malta’s case as embodied by the minister for finance, presents the financial estimates to the House of Representatives, and it is only after the House of Representatives scrutinises the financial estimates or revenue and expenditure in an appropriation bill, that the financial budget is approved through the Budget Measures Implementation Act.90 Therefore, the financial budget has to be approved by the House of Representatives, following its presentation to the House of Representatives by the Minister for Finance. The Minister 84 Constitution of Malta, Art 104: ‘Parliament may make provision under which, if the Appropriation Act in respect of any financial year has not come into operation by the beginning of that financial year, the Minister responsible for finance may authorise the withdrawal of moneys from the Consolidated Fund for the purpose of meeting such expenditure as he may consider necessary to carry on the government of Malta until the expiration of four months from the beginning of that financial year or the coming into operation of the whichever is the earlier.’ 85 Borg, A Commentary on the Constitution of Malta, 470. 86 Art 105(1), Constitution of Malta. 87 Ch 601, Laws of Malta. 88 Art 105(2), Constitution of Malta. 89 Art 106, ibid. Budget Measures Implementation Act (2017), Ch 57, Laws of Malta. 90 Budget Measures Implementation Act (2017), Ch 57, Laws of Malta.

Malta  477 for Finance himself would have sought the approval of the European Commission in terms of the European semester timelines, prior to presenting the financial budget to the House of Representatives. Therefore, from the national point of view, it is the executive which triggers the budgetary process. Nevertheless, the budget has to follow the parliamentary iter and is finally approved by the House of Representatives. Hitherto, Maltese courts have not intervened in matters dealing with monetary, economic and fiscal policies. Debates of a constitutional nature on the matter were also lacking when Malta joined the eurozone. Due to the lack of EMU-related constitutional amendments, the Maltese legislator opted for the enactment of special laws in order to give effect to the EU’s legislation on economic, financial and monetary governance, most notably through the enactment of the Fiscal Responsibility Act.

A.  Special Laws and Regulations on Public Finances Due to the rather basic references to public finance in the Constitution, which also lacks references to EMU legislation, the Maltese public finance law on EMU legislation is dispersed in a number of special laws. All special laws reviewed hereunder are relatively recent and have been enacted in order to comply with the EU acquis on economic, fiscal and monetary governance.

i.  The Fiscal Responsibility Act During the parliamentary debate on the Fiscal Responsibility Bill,91 the Hon Edward Scicluna, minister for finance, described the Fiscal Responsibility Act as a milestone for Malta. This was because it would establish a regulatory framework setting out principles of fiscal responsibility that the government will have to abide by.92 As a result of the Fiscal Responsibility Act, there would be a framework directing the government to be responsible and accountable.93 The opposition’s shadow speaker on finance matters, the Hon Tonio Fenech, stated that the opposition agreed with the orientation of the Fiscal Responsibility Act, and proposed a number of amendments.94 Interestingly, in this parliamentary debate, the Hon Fenech questioned the Minister of Finance on when the golden rule was going to be implemented in Malta’s Constitution, stating that this was an integral part of the agreement reached at the EU level and that its introduction in the Constitution was important in order to achieve the necessary constitutional safeguards.95 The minister for finance replied that the matter was a very serious one, and that it merited more study and discussion at the House of Representatives and also in other fora, such as the Malta Council

91 Parliamentary debate dated 1 July 2014. 92 Ibid, Onor Edward Scicluna ‘Dan l-Abbozz ta’ Ligi huwa milestone ghal pajjizna ghax se jdahhal il-Gvern f ’qafas regolatorju. Il-Gvern se jkollu jibda jimxi fuq certi principji ta’ responsabilita’ fiskali u ghalhekk huwa importanti hafna’, 401. 93 Ibid, Onor Edward Scicluna ‘Mil-lum ‘il quddiem se jkun hemm qafas li jibda jidderiegi lill-Gvern bie xikun responsabbli u accountable’, 402. 94 Ibid, Onor Tonio Fenech ‘nibda biex nghid li l-Oppozizzjoni qed taqbel mal-orjentament ta’ din il-ligi. Hemm xi punti fejn kieku nixtiequ naraw kunsiderazzjonijiet differenti’, 406. 95 Ibdi, Onor Tonio Fenech ‘Nixtieq nistaqsi pero’ meta se tigi introdotta l-golden rule fil-Kostituzzjoni taghna. Din hija xi haga li kienet importanti ghax taghti lil din il-ligi s-sahha kostituzzjonali li ghandha bzonn’, 410.

478  Joseph Bugeja for Economic and Social Development (MCESD). He added that one cannot change anything in the Constitution, especially when this concerns the government’s surplus or deficit from year to year, before studying thoroughly Malta’s particular situation. Finally, the Fiscal Responsibility Act was unanimously approved by the House of Representatives on 8 August 2014.96 This Act incorporated EU law on the budgetary process and transposed the obligations under Council Directive 85/2011/EU on requirements for budgetary frameworks.97 Therefore, the Fiscal Responsibility Act gave the much-needed legal framework in the Maltese legal economic and fiscal field and, most notably, with respect to the budget process and its preparations. Yet this Maltese budgetary framework, including the TSCG golden rule, was not enshrined in the Constitution. The Fiscal Responsibility Act includes references to a number of EU Regulations.98 For instance, for the first time in the Maltese financial legal framework, Article 2 of the Fiscal Responsibility Act defines the ‘budget’, ‘general government’, ‘general government debt’, ‘general government deficit’, ‘general government surplus’, ‘medium-term budgetary objective’, the ‘Stability and Growth Pact’ (1997 Surveillance and Coordination Regulation, the 1997 Excessive Deficit Regulation and the Resolution of the European Council of 17 June 1997 on the Stability and Growth Pact) and the ‘Stability Programme’. The Maltese government shall define and carry out its fiscal and budgetary policies according to the principles of transparency, stability, fiscal responsibility, equity, efficiency, effective management of personnel spending and effective financial/asset management.99 These principles ‘shall be equally applicable to the Local Councils, public sector authorities, entities and agencies that are fully or partially financed from the Consolidated Fund’.100 The Fiscal Responsibility Act sets out the objectives of the government’s fiscal and budgetary policy. Most importantly, it is aimed to ‘achieve a balanced general government budget over the economic cycle’,101 and including the objective to maintain sustainability in the public debt over the medium and long term102 and to ‘pursue revenue and expenditure policies that would support economic growth, social equity and the general well-being of the population’.103 Part II (Fiscal Rules) refers to Articles 3 and 4 of the TSCG requiring the government to ensure that the budgetary position of the general government is in balance or in surplus, or that this requirement is not met only due to exceptional circumstances and the failure to meet it does not endanger fiscal sustainability in the medium term.104 If the budgetary condition is not met, an adjustment path condition applies. The adjustment path condition is that either (a) the annual structural balance of the general government is converging towards the medium-term budgetary objective in line with the timeframe set in the 1997 Surveillance and Coordination Regulation, or (b) the requirement in (a) is not met only as a result of the exceptional circumstances and the failure to meet it does not endanger fiscal sustainability in the medium term.105 96 Act XXVII of 2014. 97 Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States. 98 Council Regulation (EC) No 1467/97 of 7 July 1997 as amended by Council Regulation (EC) No 1056/2005 of 27 June 2005 and Council Regulation (EU) No 1177/2011 of 8 November 2011; Council Regulation (EC) No 1466/97 of 7 July 1997, as amended by Council Regulation (EC) No 1055/2005 of 27 June 2005 and Regulation (EU) No 1175/2011 of 16 November 2011; Council Regulation (EC) No 479/2009 of 25 May 2009, as amended by Council Regulation (EU) No 679/2010 of 26 July 2010; and Regulation (EU) No 473/2013 of 21 May 2013. 99 Art 3, Fiscal Responsibility Act. 100 Art 4, ibid. 101 Art 6(a), ibid. 102 Art 6(b), ibid. 103 Art 6(m), ibid. 104 Art 8(1), (2), ibid. 105 Art 8(4), ibid.

Malta  479 If and when the European Commission issues a warning in terms of ‘article 6(2) of the 1997 Surveillance and Coordination Regulation or if the Government considers that there is a failure to comply with the budgetary rule which constitutes a significant deviation for the purposes of Article 6(3) of that Regulation’, the government shall within two months prepare and lay before the House of Representatives a plan specifying what must be done to secure compliance with the budgetary rule.106 The plan shall include the period over which compliance with the budgetary rule shall be achieved, the annual targets, the size and nature of the revenue/expenditure which are to be taken to secure compliance with the budgetary rule, and an outline of how any revenue/expenditure measures that are to be taken relate to different subsectors of the general government.107 It is mandatory that the plan complies with the rules of the Stability and Growth Pact, and also with ‘any recommendations made to Malta under the Stability and Growth Pact in relation to the period over which compliance with the budgetary rule is to be achieved and the size of measures to be taken to secure such compliance’, as well as with the current stability programme.108 The Ministry for Finance is tasked to publish official forecasts ‘to be used in the context of the national medium-term fiscal plan and the draft budget, and such forecasts must also be submitted simultaneously to the Fiscal Council endorsement for the purposes of the 2013 Regulation’.109 For the first time, the Fiscal Responsibility Act provided for the creation of the Fiscal Advisory Council.110 The Fiscal Advisory Council is an independent and impartial fiscal advisory organ, which ‘will not seek or receive instructions from public authorities or from any other institution or authority’.111 Yet the Fiscal Advisory Council, which comprises three members with fouryear mandates,112 is appointed by the minister for finance, who is not bound to consult anybody in making the appointments.113 Furthermore, the wide discretion enjoyed by the minister for finance – namely that each member of the Fiscal Council shall: a)

hold office on such terms (other than the payment of remuneration and allowances for expenses) as the Minister for Finance may determine; and b) be paid by the Fiscal Council, out of the resources at its disposal, such remuneration and allowances for expenses as the Minister for Finance may determine,114

– may have an effect on the independence and impartiality of the Members of the Fiscal Advisory Council. The primary role of the Fiscal Advisory Council is to ‘review and assess the extent to which the fiscal and economic policy objectives proposed by the Government are being achieved and thus contribute to more transparency and clarity about the aims and effectiveness of economic policy’.115 The Fiscal Advisory Council is also tasked to: (a) endorse, as it considers appropriate, the macroeconomic and fiscal forecasts prepared by the Ministry for Finance and provide an assessment of the official forecasts, and



106 Art

11, ibid. 11(2), ibid. 108 Art 11(3, ibid. 109 Art 12, ibid. 110 Art 42, ibid. 111 Art 43, ibid. 112 Art 49(1), ibid. 113 Art 48, ibid. 114 Art 51, ibid. 115 Art 43(2), ibid. 107 Art

480  Joseph Bugeja (b) analyse and assess whether the Government’s fiscal strategy is compliant with the provisions of the Act, issue an opinion and any appropriate recommendations; (c) in relation to each Medium Term Fiscal Policy Statement, Fiscal Policy Strategy, National Medium Term Fiscal Plan, Stability Programme, Annual Draft Budget and Annual Budget, provide an assessment of whether the fiscal stance for the year or years concerned is, in the opinion of the Fiscal Council, conducive to prudent economic and budgetary management, including by reference to the provisions of the Stability and Growth Pact; (d) assess the Government’s budgetary performance against the fiscal targets and policies specified in the fiscal strategy and its compliance with the provisions of this Act; (e) analyse and issue an opinion and any recommendations pursuant to the Government’s publication of the half-yearly and the annual report on the execution of the budget; (f) provide information and advice to Government and the Public Accounts Committee concerning any legislative proposals on the maintenance of fiscal discipline and the transparency of the fiscal and the budgetary policies and processes.116

At the end of each financial year, the Fiscal Advisory Council prepares a report of its activities for the current year and presents it to the minister for finance, who shall submit it to the House of Representatives. According to the EU Commission’s assessment, ‘[t]he national provisions adopted by Malta are compliant with the requirements set in Article 3(2) of the TSCG and in the common principles’.117 The Fiscal Responsibility Act also provides detailed rules to be followed with respect to the budgetary process, which comprise the following stages. a.  Business and Financial Plans It is mandatory for each public body to prepare a three-year rolling business and financial plan. This plan must be presented to the ministry for finance by the second week of July of every year and be based on the most recently announced Medium Term Fiscal Strategy.118 The ministry for finance may issue guidelines for the preparation of the business and financial plans.119 If a public body fails to prepare the business and financial plan, this will ‘automatically give the right to ministry of finance to allocate finds upon its own discretion’.120 The ministry may also propose amendments to the business and financial plans to ensure compliance with the government’s Medium Term Fiscal Strategy. b.  Medium Term Fiscal Strategy The government is obliged, on a yearly basis, to present to the House of Representatives, the Medium Term Fiscal Policy Statement and the Fiscal Policy Strategy. The latter sets forth ‘the Government’s fiscal objectives, strategic priorities and a three-year rolling target for fiscal management together with a description of any underlying assumptions’.121 It is mandatory for

116 Art 13(3), ibid. 117 European Commission, Annex, Country Annex Malta to the Report from the Commission presented under Art 8 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, Brussels, 22.2.2017, C(2017) 1201, 5. 118 Art 14(1), Fiscal Responsibility Act. 119 Art 14(2), ibid. 120 Art 14(3), ibid. 121 Art 15(2), ibid.

Malta  481 the macroeconomic framework underlying the Medium Term Fiscal Policy Statement to contain several points. These include (1) information on the macroeconomic situation and forecasts, including the current budget year and at least the next three financial years and actual out-turns for the two previous budget years, (2) the gross domestic product and its components, (3) the consumer prices, (4) the gross domestic product deflator, (5) a statement of the consistency or differences with the forecasts from the European Commission, and, if appropriate, those of other independent bodies, including a comparison of the main economic assumptions.122 The Medium Term Fiscal Policy Strategy sets out (1) an aggregated level of the government’s spending plans for the forthcoming budget year, (2) the three subsequent years, (3) estimated actual results for the current year, and (4) actual results for the two previous years.123 The ministry for finance is obliged to prepare a draft budgetary plan for the forthcoming year based on the medium term fiscal plan projections which shall include the mandatory information for the forthcoming year as specified in Article 16(2) of the Fiscal Responsibility Act. This includes the targeted budget balance as a percentage of GDP broken down by subsector and the targeted expenditure and revenue as a percentage of GDP. In presenting the annual budget to the House of Representatives, the prime minister and the minister for finance ‘shall sign a statement attesting’ that the annual budget is consistent with the fiscal responsibility principles, the fiscal rules, the fiscal strategy and any other requirements of the Fiscal Responsibility Act.124 The ministry for finance is empowered to request amendments to any budgetary proposals or to reject all requests for budgetary allocations that would not be compliant with the government’s fiscal strategy and any instructions that may be issued by the said ministry. If the spending entity fails to amend its budget proposal in line with the instructions of the ministry for finance, the latter is empowered to unilaterally amend the budget proposal for inclusion in the annual budget. Any public body that proposes projects/policies/programmes/measures that involve new or increased public expenditure shall provide the necessary information in terms of Article 18 of the Fiscal Responsibility Act. Such proposals shall then be reviewed and assessed by the ministry for finance, in order to determine whether they are to be included in the annual government budget. Furthermore, during a particular budget year, ‘no new or additional expenditures can be made or committed to in excess of the relevant allocation, except with the express approval of the Minister of Finance’.125 Thus, safeguards are in place in the sense that additional allocations need the approval of the minister for finance. In doing that the minister shall exercise his discretionary powers in line with the fiscal rules and the spending ceilings, by requesting the spending entity to first consider virements between heads of expenditure within the same department and then the re-allocation of expenditure within the same ministry.126 c.  Budgetary Revenues Besides the presentation of the annual budget, the ministry for finance shall also publish a detailed annual programme for revenue collection and the annual forecasts for revenue collection from any self-financed institutions.

122 Art

15(4), ibid. 15(7), ibid. 124 Art 17(1), ibid. 125 Art 22, ibid. 126 Art 23, ibid. 123 Art

482  Joseph Bugeja d.  Contingency Reserve The Fiscal Responsibility Act provides for the establishment of a contingency reserve by the Ministry for Finance, which shall amount to between 0.1 per cent and 0.5 per cent of GDP in any one particular year: to ensure that unforeseen expenditure or revenue slippages do not jeopardise the compliance with fiscal rules.127 … As long as the budget is not balanced, the contingency reserve is to be established as an expenditure vote to be appropriated in the event of temporary and unforeseen circumstances.128

Any drawdown from the Contingency Reserve shall only be made in ‘urgent, temporary, and unforeseen circumstances following a proposal from the Ministry for Finance and with the approval of the Prime Minister’.129 Such drawdowns shall be replenished gradually over a period of three years until the ceiling of between 0.1 per cent and 0.5 per cent of GDP is re-established. Any drawdown needs the final approval of the ministry for finance. e.  Monitoring of Budget Execution It is incumbent on the ministry for finance to monitor and evaluate regularly the implementation of the approved budget. To this effect, the said ministry is empowered to issue instructions/directives to all public bodies in ‘furtherance of Government’s fiscal strategy objectives and targets’,130 as well as to request any information. Public bodies need to ensure ‘a reliable, transparent and functioning institutional framework that would ensure the integrity of all fiscal reporting systems’.131 After the annual budget is approved and in the course of its implementation, the ministry for finance is obliged to publish monthly schedules of revenues and expenditures, ‘desegregated by revenue source and economic function’.132 In July of each year, the minister for finance shall lay on the table of the House of Representatives a half-yearly report on Malta’s economic and budgetary situation.133 f.  Revisions and Government Annual Report Revision of the fiscal strategy may take place in three instances: –– when there is a change in the coverage of the general government budget; –– if there is a ‘significant worsening of the macroeconomic indicators that were used in preparing the fiscal strategy’; –– if a new government changes the Medium Term Fiscal Strategy to reflect its new policy.134 The finance minister submits any revisions of the fiscal strategy to the House of Representatives for its consideration. These revisions, together with the annual budget, shall be subject also to review and opinion of the Fiscal Advisory Council. Finally, the minister for finance shall publish an annual report on the previous fiscal year before or at the end of June of each year.

127 Art

31, ibid. 32, ibid. 129 Art 36, ibid. 130 Art 39(2)(b), Fiscal Responsibility Act. 131 Art 39(1), ibid. 132 Art 39(6), ibid. 133 Art 39(7), ibid. 134 Art 40(4), ibid. 128 Art

Malta  483

ii.  Public Finance Management Act The Public Finance Management Act135 was enacted on 12 July 2019, and replaced the Financial Administration and Audit Act.136 The Public Finance Management Act elaborates further on the constitutional provisions pertaining to the Appropriation Act, by establishing the following principle: i. Any act appropriating moneys out of the Consolidated Fund shall not be construed as authorising the expenditure of such moneys in any financial year other than the financial year to which it is expressed to relate, and any moneys so appropriated which may remain unexpended at the close of any financial year shall cease to be a liability on the Consolidated Fund for that year.137 ii. If the Appropriation Act does not come into operation at the commencement of any financial year, the Minister for Finance may authorise the issue of moneys from the Consolidated Fund for the purpose of meeting recurrent and capital expenditure as may be considered necessary for carrying on the Government. (1) Provided that moneys so authorised to be issued for any service which is of a recurrent nature shall not exceed one-third of the amount voted for that expenditure under the Appropriation Act relating to the preceding financial year. Provided further that moneys, to be issued for any capital expenditure, shall only be authorised for contracts which have already been entered into in the previous finanical years.138 (2) Any moneys authorised to be issued as provided in sub article (1) shall not exceed the sum specified for that expenditure in the estimates presented for the current financial year and shall be set off against the amounts respectively provided in the Appropriation Act on its coming into force.139 (3) The powers conferred on the Minister by this article shall not extend beyond the period of the first four (4) months of any financial year or beyond the day on which the Appropriation Act for that year comes into operation, whichever is the earlier’.140 The Minister for Finance is also empowered to alter the proportions assigned to the subheads under a head of the expenditure as per financial estimates if the exigencies of a department/ entity render this necessary. In that case, the Minister may authorise a virement in writing for the transfer of a sum out of any surplus arising of any other subhead of the same head ‘in aid of any subhead which may be deficient’.141 Furthermore, if it results that the appropriated amount for a particular financial year proves to be insufficient or ‘that a need arose for expenditure for a purpose for which no amount has been appropriated by the Act, or that any moneys have been expended for any purpose in excess of the amount appropriated for the purpose by the Appropriation Act, or for a purpose for which no amount has been appropriated by the Act’, the Public Finance Management Act provides for supplementary estimates, which shall be laid before the House of Representatives.142

135 Public Finance Management Act, Chapter 601, Laws of Malta. 136 Chapter 174, Laws of Malta. This Act has been abrogated. This was the first Maltese legislation which provided for the regulation, receipt, control and disimbursement of public sector resources, the audit of government accounts and other ancillary financial matters. 137 Art 9, ibid. 138 Ibid, Art 10. 139 Art 10(2), ibid. 140 Art 10(3), ibid. 141 Art 11, ibid. 142 Art 12, ibid.

484  Joseph Bugeja The General Financial Regulations,143 which substituted earlier financial regulations, have been enacted under the vires of the Public Finance Management Act. Of particular interest is that these Regulations mention the financial forecasts, with the permanent secretary of the ministry for finance, as chief financial advisor to government, preparing the annual financial revenue and expenditure forecasts. Yet, the responsibility for the implementation of the financial estimates remains with the individual ministries ‘in respect of which the respective estimates appear, in terms of the Fiscal Responsibility Act’.144 The Regulations specify that the revenue and expenditure forecasts of each department have to be prepared by the respective head of department. Then the latter has to forward the forecasts through the minister responsible to the department for onward transmission to the permanent secretary of the ministry for finance, together with any information that may be required including the provisions emerging from Article 14 of the Fiscal Responsibility Act.145

iii.  Government Borrowing and Management of Public Debt Act The aim of this special law146 ‘covers the governance aspects, high level policy objectives and institutional arrangement for prudent management of the Government’s debt, cash position, and liquidity and reserve funds’.147 Through this Act, the Maltese government may borrow money, both in and outside Malta in any such manner and currency as provided by this Act and any other Act of Parliament that ‘expressly authorises the borrowing of money for any purpose mentioned in the Act and up to such amount or amounts as may be authorised by such Act’.148 This Act links with the Fiscal Responsibility Act in the sense that in order to ensure sustainable levels of debt, the debt burden during any year shall be subject to a limit as specified in the Fiscal Responsibility Act.149 This requirement can only be derogated from in exceptional circumstances.150 All money raised through borrowings shall be paid into the Consolidated Fund,151 and to this effect For any public debt contracted or issued as specified under article 14, all payments related to such debt in respect of interest, sinking fund, redemption moneys, and any other charges and expenses incidental to the management of that debt shall be payable out of the general revenue and assets of the Government and charged to the Consolidated Fund and other public funds of the Government without the need of any further appropriation other than this Act.152

Furthermore, the government may provide financial guarantees ‘to a third party in Malta for the benefit of the economy in Malta’.153 This may be debatable, because the government is being empowered to issue guarantees with respect to private third parties. Thus, the Government would be guaranteeing private interests with public funds, to the extent that All amounts required for the payment of sums in pursuance of a guarantee given under this Act and for the payment of all interest and other charges on those sums shall be charged upon and shall be payable out of the Consolidated Fund.154

143 General

Financial Regulations, Subsidiary Legislation 174.01, came into force on 11 April 2017. 7, ibid. 8, ibid. 146 Ch 575, Laws of Malta Act XXII of 2017. 147 Ch 575, Laws of Malta, Art 3. 148 Art 4, ibid. 149 Art 11, ibid. 150 Art 12, ibid. 151 Art 14, ibid. 152 Art 15(2), ibid. 153 Art 40, ibid. 154 Art 44(1), Ch 575, ibid. 144 Reg 145 Reg

Malta  485

iv.  Government Borrowing and Granting of Loans to the Hellenic Republic Act The ‘Government borrowing and granting of loans to the Hellenic Republic Act’155 was enacted to authorise and regulate the raising of loans for the purpose of entering into re-lending agreements with the Hellenic Republic. Through this Act, the government of Malta can borrow sums of money ‘in Malta, for an amount which in total do not exceed thirty million Euro and such other sums of money as the House of Representatives may from time to time by resolution authorise’.156 In order to raise the said sum by way of a loan, the minister for finance is authorised to borrow on such terms and conditions as per provisions of the Local Loans (Registered Stock and Securities) Ordinance.157 In case of urgency, the minister for finance may authorise the use of funds from the Consolidated Fund ‘in order to meet the financing requirements of the Loan Facility Agreements and the Intercreditor Agreement until such time as the proceeds of the borrowing’.158

v.  Participation within the Single Resolution Fund and Granting of Financial Support under the Single Resolution Mechanism Act This special law authorises the Maltese government to enter into an agreement159 on the transfer and mutualisation of contributions to the Single Resolution Fund during the transitional period before the entry into force of the Single Resolution Mechanism Regulation. Furthermore, it also provides for the entering into financial or other agreements or arrangements with the participants of the Single Resolution Mechanism.160 This law authorised the government of Malta to ratify the agreement on the transfer and mutualisation of contributions to the Single Resolution Fund,161 which is annexed to the Act. It must be noted that any contribution granted by the government of Malta, beyond the purpose specified under Article 3(2) of the Single European Mechanism, namely beyond the compartments allotted to Malta, ‘may only be done in such manner and for such purpose as the House of Representatives may by resolution determine’.162 Therefore, the House of Representatives retains full control on the process.

V.  Resulting Relationship between EMU Related law and National Law – Conclusion Although the Constitution has not been amended to reflect past developments on economic, fiscal and monetary governance, the Maltese legislator has internalised EU law through ordinary legislation. Notwithstanding, the first safeguard for the transposition of EU law is the European Union Act. This states categorically that all Treaty and future EU acts are part of Maltese law and 155 Ch 502, ibid. 156 Government borrowing and granting of loans to the Hellenic Republic Act, Ch 502, ibid, Art 3(1). 157 Ch 161, ibid. 158 Government borrowing and granting of loans to the Hellenic Republic Act, Ch 502, ibid, Art 3. 159 Ch 547, ibid, Art 3(2) notes that the Agreement provides for ‘the uniform rules and procedures for the transfer of contributions to the Single Resolution Fund and for the recourse to the compartments allotted to participating Member states in the Single Resolution Fund in times of economic crisis’. 160 Ch 547, ibid. The mechanism established through EU Regulation 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) 1093/2010 of the European Parliament and the Council. 161 Art 2, ibid. 162 Art 5, ibid.

486  Joseph Bugeja directly applicable through Article 3 of the European Union Act of 2004. According to that provision, EU law is supreme over incompatible domestic law and the affected domestic law shall be devoid of legal effect and unenforceable. Secondly, Article 65 of the Constitution provides that parliament shall legislate in conformity with Malta’s international and regional obligations in particular the obligations emanating from Malta’s Accession Treaty to the EU. To this effect, irrespective of the fact that the Constitution has not been amended to reflect developments on matters concerning economic, fiscal and monetary governance, EU law has binding force, and is directly enforceable in Malta and any future EU acts in this field are directly applicable and enforceable. Any future developments on economic, fiscal and monetary governance can continue to be assimilated into the Maltese legal order. This can happen because they are directly applicable (in case of a Regulation), through new Acts of Parliament, or through amendments of existing ordinary acts, depending on the type of legal instrument to be transposed. Whether the House of Representatives will decide to entrench the main provisions on the economic and monetary union in the Constitution remains to be seen. It will be interesting if this is considered in any eventual discussion on a Second Constitution, which from time to time is raised in political fora. Indeed, the aforementioned Article 3 of the European Union Act offers the much needed safeguard in terms of direct applicability and supremacy of EU law over incompatible domestic law. With respect to any future obstacle to further EMU integration, Article 73 of the Constitution regarding the imposition or increase of any tax/charge on the revenues or other funds of Malta or their alteration may prove challenging from a Maltese constitutional point of view. In this context, whether the EU achieves the roadmap in its quest to deepen the EMU, including the integration of the TSCG into the EU legal framework, the establishment of an EMF and a minister of the economy and finance, is not simply a question of constitutional set-up of the EU Member States. Rather, and firstly, this is a question concerning the political willingness of the EU Member States. It is fundamentally a question of whether EU Member States are determined to transcend their respective remaining sovereignties with a view to achieve full economic and monetary union as per Treaty obligations.

References DJ Attard, The Maltese Legal System, Vol I (Malta, Malta University Press, 2012). DJ Attard, The Maltese Legal System, Vol II, Constitutional and Human Rights Law, Part A (Malta, Malta University Press, 2015). T Borg, A Commentary on the Constitution of Malta, (Malta, Kite, 2016). JJ Cremona, The Maltese Constitution and Constitutional History since 1813, 2nd edn (San Gwann, Malta, Publishers Enterprises Group Ltd, 1997). European Commission, COM (2017)2025, ‘White Paper on the Future of Europe – Reflections and scenarios for the EU27 by 2025’. European Commission, COM (2017) 291, ‘Reflection Paper on the deepening of the economic and monetary union’. European Commission, COM (2017) 823, ‘Communication on a European Minister of Economy and Finance’. European Commission, COM (2017) 824, ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’. European Commission, COM (2017) 827, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’. European Commission, Annex, Country Annex Malta to the Report from the Commission presented under Article 8 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, Brussels, 22.2.2017, C(2017) 1201.

Malta  487 European Parliament, Resolution of 16 February 2017 on budgetary capacity for the euro area (2015/2344(INI)), Budgetary Capacity in the Euro area, P8_ TA(2017)0050. I Sammut, ‘The EU and Maltese Legal Orders: What kind of marriage between them?’, www.um.edu.mt/ europeanstudies/books/CD_CSP5/pdf/isammut.pdf.

Jurisprudence Carmel Demicoli v l-Onorevoli Speaker tal-Kamra tad-Deputati, l-Onorevoli Prim Ministru u l-Ministru tal-Gustizzja u Affarijiet tal-Parlament, fil-kwalita’ taghhom premessa u in rapprezentanza ta’ l-istess Kamra tad-Deputati, Qorti Kostituzzjonali, 13 October 1986. Gustavo Sebono v Housing Secretary, First Hall Civil Court, Decision of 27 June 1973. Qorti Kostituzzjonali, Vodafone Malta Limited; u Mobisle Communications Limited (C-24655) li b’digriet tad-19 ta’ Settembru 2005 thalliet tidhol fil-kawza v L-Avukat Generali; il-Kontrollur tad-Dwana; il-Ministru tal-Finanzi; l-Awtorita’ ta’ Malta ghall-Komunikazzjoni, Appelli Civili Numru 361/2005/1, 3 ta’ Marzu 2014.

488

20 The Netherlands JAN-HERMAN REESTMAN, MONICA CLAES

I.  Main Characteristics of the National Constitutional System and Constitutional Culture A.  The Constitutional System of the Netherlands, Including the Judiciary The Netherlands’ constitutional system is based mainly on the Constitution (Grondwet), which dates back to 1814, but was revised many times.1 The latest major revision was in 1983 when the entire text and structure of the document were modernised, and a catalogue of fundamental rights was inserted as Chapter I. The Netherlands is a constitutional monarchy, in which the King plays a merely ceremonial role, with a parliamentary form of government.2 The parliament (the States-General – Staten Generaal) consists of two houses, the Lower House (Tweede Kamer) and the Upper House (Eerste Kamer), the government of King and ministers. Governmental stability is rather high, but there are considerable fluctuations between periods. The Lower House is politically the most important of the two Houses. The Upper House is indirectly elected, via the provinces, but is not regarded as a provincial representation at the national level and functions instead as a chambre de réflexion. It has no right of initiative, and no right of amendment. The Netherlands is a decentralised unitary state, where the provinces and municipalities have a certain degree of autonomy, but always have to act in accordance with the law set by higher authorities.3 The central government is devolving more tasks to the local governments, eg, in

1 A distinction is often made between the Constitution (Grondwet)- ie, the document that contains many of the basic rules of the constitutional system, and the Constitution (constitutie)– the wider collection of constitutional rules, norms and principles that govern the polity. This broader constitution contains, in addition to the Constitution, also certain rules contained in international treaties (such as human rights treaties or certain rules of EU law), unwritten rules, constitutional principles and conventions, as well as a number of acts of parliament. See eg, Luc Verhey, De constitutionele conventie: een blinde vlek in ons staatsrecht (Alphen aan den Rijn, Kluwer, 2014). 2 The rule that ministers, individually or collectively, should resign if the Lower House adopts a motion of no confidence is unwritten; opinions differ on whether the Upper is entitled to adopt a motion of no confidence. 3 To be more precise, the Netherlands forms part of the Kingdom of Netherlands, a union with federal characteristics comprising several countries: the Netherlands (country in Europe), Aruba, Curaçao and St Maarten. In the context of this project, however, the focus will be on the Netherlands (the country in Europe), rather than on the Kingdom of the Netherlands. The relationship between the four countries and their respective competences are regulated in the Charter of the Kingdom of 1954.

490  Jan-Herman Reestman, Monica Claes the social policy domain. Financially, municipalities and provinces are heavily dependent on the central government.4 The highest court for civil and criminal matters is the Supreme Court (Hoge Raad), and the CoS (Administrative Jurisdiction Division – Afdeling Bestuursrechtspraak van de Raad van State) is the highest general administrative court of the land. The Central Appeals Court for the public service and social security matters (Centrale Raad van Beroep) hears appeals in the final instance in cases involving public servants and social security cases, while the Administrative Court for Trade and Industry (College van Beroep voor het bedrijfsleven) is the highest court for matters relating to socioeconomic administrative law. There is no constitutional court in The Netherlands, and Article 120 of the Constitution explicitly bans judicial constitutional reviews of acts of parliament and treaties. The Supreme Court interprets the provision extensively: it not only prohibits courts to review acts of parliament against the Constitution but also against (unwritten) general principles of law and the Charter of the Kingdom, the Netherlands’ quasi-federal constitution.5 Constitutional reviews of parliamentary legislation are thus considered to be the prerogative of the legislature, consisting of the government and the States-General, with the Upper House acting as a chambre de réflexion. In addition, the CoS (Advisory Division-Afdeling advisering van de Raad van State)) advises government and parliament on the compatibility of bills introduced in parliament with the Constitution and international law. Its advice is not binding, but it is authoritative. While the courts cannot review acts of parliament against the Constitution, they may and do review the constitutionality of lower regulations (Royal Decree, ministerial orders, municipal by-laws). Moreover, they can and must review the compatibility of acts of parliament with the directly effective provisions of written international law (Article 94 Constitution, see hereunder). In general, the judiciary has a rather modest place in the Dutch constitutional order. Courts do not generally scrutinise economic issues. As regards the relationship between national law and international law, the Netherlands adheres to a monistic view. All international law binding on the Netherlands, including unwritten international law, is considered to be part of the law of the land on the basis of unwritten constitutional law.6 The Constitution regulates the status of provisions of directly effective written international law. Article 93 of the Constitution provides that provisions of treaties and of decisions of international organisations ‘which can bind everyone’, ie, which are directly effective,7 are binding upon publication. Article 94 of the Constitution adds that national regulations in the Netherlands, including the Constitution itself, shall not be applicable if they conflict with the directly effective provisions of treaties or decisions of international organisations. Courts, therefore, may and must review all national regulations, including acts of parliament and even the Constitution, against directly effective provisions of written international law. However, courts are not allowed to disapply national regulations if they are in conflict with unwritten i­ nternational law.8

4 See generally on local government in the Netherlands: Frank Hendriks and Linze Schaap, ‘The Netherlands: Subnational democracy and the reinvention of tradition’ in J Loughlin, Frank Hendriks and A Lidstrom (eds), The Oxford Handbook of local and regional democracy in Europe (Oxford, Oxford University Press, 2011) 96–119. 5 HR 14 April 1989, ECLI:NL:HR:1989:AD5725 (Harmonisatiewet). 6 HR 28 November 1919, NJ 1920, p 1210 (Grenstractaat Aken). 7 The Supreme Court interprets the concept ‘binding on everyone’ in a similar way as the CJEU interprets the concept ‘direct effect’; HR 10 October 2014, ECLI:NL:HR:2014:2928 (Rookverbod). 8 HR 18 September 2001, ECLI:NL:HR:2001:AB1471.

The Netherlands  491 When it comes to EU law, the courts follow a similar approach – as we will examine below – in that the direct effect and primacy of EU law tend to be grounded on the nature of EU law as adopted in the case law of the European Court of Justice (ECJ), rather than on constitutional provisions. As mentioned, international law also serves as a benchmark for the States-General and CoS in the evaluation of bills. As a rule, the legislature, the CoS and the courts interpret the Constitution consistently with international and European law. In 1980, the Lower House adopted a (non-binding) resolution that in case of doubt the provisions of the Constitution should be interpreted so that the European integration process is not hindered by it.9 However, this resolution was explicitly repealed by the Lower House in 2013, with a resolution stating ‘that the provisions of the Dutch Constitution are to be interpreted in a normal manner in accordance with the objectives and considerations of the Dutch legislature’.10 Nevertheless, in general, consistent interpretation may be still said to be the prevailing method of interpretation of the Constitution.

B.  Significance of the Dutch Constitution in the Legal System and Importance for the Polity The Netherlands does not have a strong constitutional culture in the sense that the Constitution does not play an significant role in public life. Pragmatism is the dominant constitutional philosophy. The Constitution does not contain a preamble, and if we leave aside the first Chapter containing fundamental rights, it is a very sober text of mainly institutional and procedural relevance lacking high-minded ideals and principles. However, a proposal for a constitutional amendment to insert an unnumbered, general article in the Constitution dedicated to democracy and the rule of law (‘The Constitution guarantees democracy, the rule of law and fundamental rights’) has been accepted by both the Lower House and Upper House.11 The Constitution is very rigid. A constitutional amendment requires two readings in both houses, general elections in between the readings, and a two-thirds majority of the votes cast in both houses in the second reading (Art 137 Constitution). The rigidity of the Constitution is often considered one of the causes for its limited legal, political and public authority, among other things because it precludes the adaptation of the Constitution to political and constitutional realities. The absence of constitutional review further reduces the authority of the Constitution, which is overshadowed by European and international (human rights) law (mainly the European Convention on Human Rights (ECHR) and EU law). The ECHR, international human rights law and EU law are often considered as a ‘substitute Constitution’. During the legislative process and public debate, European and international law are more often indicated as guiding and limiting the action of public authorities, than the Constitution. Thus for instance, in assessing bills and other requests for advice, the Advisory Division of the CoS reviews whether a bill is compatible with ‘higher law’, which includes the Constitution,

9 Kamerstukken (Parliamentary Papers)15049, 16 (motie Brinkhorst). 10 Kamerstukken (Parliamentary Papers) 21501-20, 732 (motie van der Staaij en Slob). 11 Kamerstukken (Parliamentary Papers) 34516. Wet van 9 maart 2018, houdende verklaring dat er grond bestaat een voorstel in overweging te nemen tot verandering van de Grondwet, strekkende tot het opnemen van een algemene bepaling [Declaration that there is a reason to consider a proposal to amend the Constitution to include a general provision]. The adoption of the Act ends the first stage of constitutional amendment. The proposed amendment will be adopted if approved with two-third majority of both houses of a future parliament. The provision would read: ‘De Grondwet ­waarborgt de grondrechten en de democratische rechtsstaat’.

492  Jan-Herman Reestman, Monica Claes treaties (such as the human rights conventions) and EU law. Treaty law generally and EU law specifically are considered part of the higher law against which bills are reviewed. In fact, directly effective provisions of treaties and decisions of international organisations, including the EU, are considered taking precedence over the Constitution under Article 94 of the Constitution (see above, under I.A).

C.  Critical Developments Two parties in the States-General are considered to be populist: Geert Wilders’ Partij voor de Vrijheid (PVV) and Thierry Baudet’s Forum voor Democratie. Both parties are anti-Islam, antiimmigration and anti-Europe. Their influence is rising. Nevertheless, there does not seem to be a serious risk of the rule of law backsliding or democratic decline. As regards the EU, Dutch politics is certainly more Eurosceptic than it used to be, but overall there is still a strong commitment to European integration.12 The country has been described as a ‘constructive EU partner’, despite its sometimes critical stances on EU integration and EU policies. For example, Netherlands has opposed the accession of Bulgaria and Romania to Schengen until they fully complied with the requirements, delayed the ratification of the agreement with Ukraine after a negative referendum, and took a long time before joining the EPPO. The Dutch approach is rule-based and requires compliance with agreements laid down in the treaties and EU legislation. Nevertheless, overall, support for Dutch membership is high according to the Eurobarometer, and the official stance, expounded by Prime Minister Rutte, is pro-EU integration. When it comes to the EMU, the Dutch preference has always been for a euro based on the strong Member States, a strict no bail-out rule and an independent ECB. The Netherlands had strong reservations about the creation of the European Financial Stability Facility (EFSF) and the EMF. It lobbied hard for independent monitoring of the SGP and reinforcement of the European Semester.13 In 2012, the prime minister won the elections on a ‘no more money to Greece’ ticket (but the government agreed to the third support package to Greece in 2015, be it reluctantly). Nevertheless, the EMU is considered to be of fundamental importance for the Netherlands. Also, the idea that further strengthening of the EMU is necessary is broadly supported. At the same time, there is a strong narrative, both in politics and scholarship, against additional transfers of sovereignty and against a political union. The dominant view is that strengthening of the EMU must take place along the traditional lines of reinforcing and better enforcing the individual fiscal discipline of the eurozone states.14 12 See Hans Vollaard and Jan van der Harst and Gerrit Voerman, Van aanvallen! naar verdedigen? De opstelling van Nederland ten aanzien van Europese integratie, 1945–2015 (Den Haag, Boom, 2015); see also Standard Eurobarometer, 2018. 13 See eg, Adriaan Schout, ‘The Netherlands as constructive EU partner searching for an EU narrative’, in J Erikson (ed), The Future of the Economic and Monetary Union. Reform perspectives in France, Germany, Italy and the Netherlands, SIEPS (2018) 60, 62–64. 14 See the memos of the government on the proposals of the EC, COM(2017)822, Communication on new budgetary instruments for a stable eurozone within the Union framework and EC, COM(2017) 823 Communication on a European Minister of Economy and Finance in Kamerstukken (Parliamentary Paper) 22112, 2471 and 2470; see also the report of a roundtable discussion with members of the Lower and Upper House on EU proposal: EC, COM(2017) 2025, White Paper on the Future of Europe; considerations and scenarios for the EU27 by 2025, Kamerstukken 22112, 2465; the report of an expert meeting in the Upper House on the future of EMU, Kamerstukken (Parliamentary Papers) 34844, C. Further the report of the Adviesraad Internationale Vraagstukken of July 2017, Is de Eurozone stormbestendig? Over verdieping en versterking van de EMU, Advies no 105 (available, also in German, French and English, at www.aiv-advice. nl/9fx/publicaties/adviezen/is-de-eurozone-stormbestendig-over-verdieping-en-versterking-van-de-emu.; see also the government’s reaction to study by the AIV in a letter to the Lower House, Kamerstukken (Parliamentary Papers),

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II.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  Specific Provisions on EMU Membership, Accession, Treaty Amendments, Judicial Control on EMU Matters The Constitution still makes no mention of membership in the EU or the EMU. The Netherlands was one of the founding members of the then European Communities. In 1953 and 1956, between the establishment of the European Coal and Steel Community (ECSC, 1952) and the establishment of the European Economic Community (EEC) and European Atomic and Energy Community (Euratom, 1958), Articles 92–94 (then numbered 65–67) were inserted in the Constitution, with the specific aim of facilitating European integration.15 Articles 93 and 94 of the Constitution, as we have already seen, provide for direct effect and primacy of directly effective treaty provisions and provision of decisions of international organisations. Article 92 of the Constitution holds that legislative, executive and judicial powers may be transferred to international organisations under public international law or pursuant to a treaty. Since 1956, the Constitution has not been amended in light of EU or EMU membership, which is considered to be fully in line with the Constitution. Article 92 of the Constitution is, therefore, still the constitutional basis of EU and EMU membership of the Netherlands. There is no special procedure for the approval of an EU (amendment) Treaty. Like any other treaty, it has to be approved by both houses of the States-General.16 For approval, a simple majority of the votes cast in both houses suffices, also when a treaty transfers legislative, executive and judicial powers to an international organisation,17 unless the treaty conflicts with the Constitution or would lead to such conflict. In that case, approval of the treaty requires a two-thirds majority of the votes cast in both houses (Arts 92 in combination with Article 91(3) Constitution).18 There was some discussion at the time of Maastricht, as to whether the introduction of the common currency deviated from Article 106 of the Constitution (‘The monetary system shall be regulated by Act of Parliament’).19 Yet, deviation from the Constitution is only deemed to take place when treaty provisions are incompatible with (the contents of) specific constitutional provisions, ‘also in view of the latter’s underlying basic assumptions and intentions’.20 However, so far, none of the EU Treaties has been considered as requiring such special majority. All EU Treaties have been

21501-20, 1262; Report of November 2017 the Advisory Division of Raad van State (CoS), The State of the Euro, available at www.raadvanstate.nl/publicaties/publicaties.html). 15 It should be noted that the transfer of powers provision was inserted merely to dispel all doubts about the possibility of such transfers, but there was a general agreement that even without such provision, powers could be transferred. 16 Unless they fall under a category in Art 7 of the Act of the Kingdom on the approval and publication of treaties which do not require parliamentary approval. The categories – such as treaties merely implementing approved treaties – are of no relevance here. 17 Treaties may also be tacitly approved by parliament (Art 91, paras 2, Constitution in conjunction with Art 4 of the Act of the Kingdom on the approval and publication of treaties). However, politically, it is highly unlikely that a treaty furthering EMU integration be approved in such a way (Art 91, para 3, of the Constitution). 18 It may be noted that the adoption of a treaty that deviates from the Constitution – thus substantively amending the Constitution – is easier than a proper constitutional amendment, which requires two readings by the States-General, with elections for the Lower House in between and a two-thirds majority in both Houses in the second reading (Art 137 Constitution). This is a sure sign of the openness of the Dutch constitutional order towards international law. 19 AW Heringa, ‘De Verdragen van Maastricht in strijd met de Grondwet’ [The Maastricht Treaty infringes the Constitution], NJB 1992, 749–52. 20 Opinions of the Raad van State of 23 December 1983 (cruise missiles), Kamerstukken (Parliamentary Papers) 17980, A-B, p 1–3; and of 19 November 1999 (foreign jurisdictions), Kamerstukken (Parliamentary Papers) 26800 VI, A, p 3.

494  Jan-Herman Reestman, Monica Claes approved by a simple majority in the States-General (see also under III.B). The same goes for the ESM Treaty and the TSCG in the EMU (Fiscal Compact). None of these treaties has ever required an adaptation of the Constitution.

B.  EMU Membership Covered by the ‘General Membership Clause’? There is no specific constitutional provision dedicated to EU or EMU membership in the Netherlands. EU and EMU membership are covered by Article 92 of the Constitution, which allows for the transfer of legislative, executive and judicial powers to be conferred on international institutions by or pursuant to a treaty.

C.  (Continued) Relevance of (General) Provisions on International Law and/or Treaties Articles 93 and 94 of the Constitution already provide for the direct effect and primacy of directly effective treaty provisions and thus seem perfectly designed as a constitutional foundation for the direct effect and primacy of EU law. The Supreme Court, both in its criminal and civil law capacities, has accepted that these provisions are irrelevant for the effect and status of directly effective EU law in the Netherlands’ legal order. It has endorsed the position of the ECJ in Costa v ENEL,21 according to which EU law may have direct effect and primacy in the national legal orders on the basis of the EU legal order’s autonomy.22 In its case law, the CoS used to take the same position. It has even gone further than the ECJ by positing that not only directly effective EU law but also non-directly effective EU law has primacy over Dutch national law and can set aside conflicting national legislation.23 However, in a more recent decision, it criticised a minister for failing to investigate whether provisions of an act of parliament conflicted with an EU directive and would thus have to be disapplied under Article 94 of the Constitution. In that way, it suggested that the primacy of EU law is based on the Constitution.24 It is too early to tell whether this decision is just an incident or the starting point of a new line of case law holding that the effect and status of EU law in the legal order of the Netherlands are determined by Articles 93 and 94 of the Constitution. Similarly, the positions of the Central Appeals Court for public service and social security matters and the Administrative Court for Trade and Industry are not entirely clear. The latter Court has always refrained from taking a stance on the issue, but recently disapplied a ministerial order which conflicted with EU law on the basis of Articles 93 and 94 of the Constitution, without giving any further explanation.25 In practical effect, however, it does not matter whether EU law is considered to take precedence on the basis of the Constitution or its nature since the courts have never alluded to constitutional limits to primacy. 21 Case 6/64 Costa v ENEL, 15 July 1964, ECLI:EU:C:1964:66. 22 HR (criminal chamber) 2 November 2004, ECLI:NL:HR:2004:AR1797 (rusttijden); HR (civil chamber) 18 September 2015, ECLI:NL:HR:2015:2722 (Staat/Habing). The government has endorsed the view, see Kamerstukken (Parliamentary Papers) 29 861, 19, 4. See on this and the following case law, Michiel Duchateau ‘Doorwerking van Europees recht en de plaats van de Nederlandse Grondwet’ in S Hardt, AW Heringa and A Waltermann (eds), Bevrijdende en begrenzende soevereiniteit (Den Haag, Bju, 2018), 125–45, 134–35. 23 ABRvS 7 juli 1995, AB 1977, 117; See also ABRvS 12 juli 2011, ECLI:NL:RVS:2011:BR2048. 24 ABRvS 11 januari 2017, ECLI:NL:RVS:2017:35. 25 CBb 28 March 2017, ECLI:NL:CBB:2017:107.

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D.  Rules Governing Closely Related Instruments Outside the EU Legal Order, Especially the ESM and the Fiscal Compact There are no specific constitutional rules governing EU and EMU related instruments that are formally placed outside the EU legal order.

E.  Practice and Doctrinal Debate on these Provisions i.  The Fiscal Compact There has been no debate about whether the Fiscal Compact conflicts with the Dutch Constitution and in particular, with Article 105(1), which stipulates that an act of parliament shall establish the budget of the Kingdom. During the examination of the act of parliament approving the Fiscal Compact, the government and parliament tacitly assumed that this was not the case. The act could, therefore, be accepted by both chambers by a simple majority. This position is in the majority shared by scholarship on the basis of the traditional literalist and restrictive interpretation of Article 91(3) of the Constitution, which stipulates that a treaty has to be approved with a two-thirds majority of the votes cast by both chambers it deviates from the Constitution or leads to such deviation.26 According to this interpretation, a treaty is only unconstitutional if its provisions are incompatible with (the contents of) particular constitutional provisions, because of the underlying fundamental assumptions and intentions (see further III B). The intention of Article 105(1) of the Constitution is twofold. It seeks to make government expenditure subject to prior authorisation by parliament (authorisation function) and, secondly, to give parliament a decisive say on the allocation of the Kingdom’s revenues (allocation function). Neither the text of Article 105(1) of the Constitution nor its underlying assumptions or intentions give the budget legislature the right to adopt an unbalanced budget. However, the contrary position has also been defended on the basis of a ‘substantive reading’ of the provision.27 Another issue is whether the Treaty should have been adopted with the qualified majority referred to in Article 91(3) of the Constitution if it would have required the budget to be included in the Constitution (quod non). That position is indeed defended in scholarship;28 see also under III 2.a. There has been some debate in the Netherlands whether the provisions of the Fiscal Compact should have been laid down in secondary EU law instead of a treaty that is formally placed outside the EU legal order. Originally the Dutch government was not of that opinion. In the version of memorandum of explanation to the bill approving the Fiscal Compact that was submitted to CoS for advice, the government wrote that the approval of the treaty by the parliaments of participating countries provided for ‘a more direct and more substantial share of national parliaments in the realisation and implementation’ of the treaty than parliamentary involvement in the drafting

26 Jan-Hermann Reestman, ‘Constitutioneel minimalisme. Het Stabiliteitsverdrag in de Nederlandse rechtsorde’ (2013) TvCR, 6–27, 24–25; HG Han Warmelink, ‘Over afwijken en afwijkingen van de Grondwet’ (2013) TvCR, 44–8; Michael Diamant and Michiel van Emmerik., ‘Het Nederlandse budgetrecht in Europees perspectief ’ (2013) TvCR, 94–129, 109–11. 27 Jan Willem Van Rossem, ‘Pleidooi voor een materiele soevereiniteitsopvatting’, (2013) TvCR, 49–54. 28 Jan-Herman Reestman, ‘Constitutioneel minimalisme. Het Stabiliteitsverdrag in de Nederlandse rechtsorde’ (2013) TvCR, 6–27, 25.

496  Jan-Herman Reestman, Monica Claes of EU directives or regulation would have provided. This accordingly would lead to an ‘enhanced national commitment to the objectives of the treaty and a stronger democratic legitimacy.’ The government also wrote that because the greater role of ‘Europe’ envisioned by the Compact could potentially have far-reaching consequences, it considered it desirable for democratic legitimacy to have the measures approved by the national parliaments.29 A similar position was defended in scholarship, which doubted whether secondary EU law has sufficient constitutional and democratic stature to impose the kind of duties as contained in the Fiscal Compact, which directly relates to national parliaments’ budget authority, without the explicit consent of the national parliaments.30 However, the Advisory Division of the CoS in its opinion on the bill did not agree with the above analysis and advised the government to delete the relevant lines, which it did. The CoS argued that with the adoption of the EU Treaties, the Member States have agreed that economic policy is a matter of common interest and the EU can adopt secondary legislation on this subject. Moreover, had EU secondary legislation been adopted, the European Parliament would have had an important role in decision-making as well as a monitoring function in the decisions on EMU related matters. Additionally, the national parliaments could have exercised influence via their government’s input into the EU decision-making process, and via their right to issue reasoned opinions under the subsidiarity protocol. As a result, national parliaments could have directly influenced the European decision-making process, while when approving treaties, they can only say yes or no.31

ii.  The ESM Treaty a)  Involvement of the Lower House in Decision-Making on Aid Dispensing Since the Schengen Treaties and the Maastricht Treaty, the Lower House when approving treaties transferring powers to the EU or related international organisations requires involvement in the decision-making process of the relevant international institutions, to compensate for the lack of co-legislative powers of parliament at the international level. Something similar happened with regard to the powers of the Board of Governors of the ESM to provide for financial aid to eurozone states in financial distress, although this time the arrangement only concerns the Lower House and is not embodied in an act of parliament. Moreover, this time the rationale does not only lie in a lack of involvement of the European Parliament, but also in the States-General’s budgetary power. In its advice on the bill approving the ESM Treaty, the CoS observed that by approving the bill and the corresponding financial obligations, the States-General had, strictly speaking, democratically legitimised the financial claim on the Netherlands that can amount to 40 billion euro. However, in view of the enormous financial obligations entered into, the Council decided that the States-General should also be involved in the decision-making by the ESM institutions. The Council suggested, in the light of Article 105 of the Constitution and the lack of democratic control on the EU level, at national level an arrangement be made to do justice to the need for democratic control over the actions of the competent minister in the context of the ESM, but at the same time, not undermine the effectiveness of the ESM.32 29 Kamerstukken (Parliamentary Papers) 33319, 4, 7–8. 30 Jan-Herman Reestman, ‘Constitutioneel minimalisme. Het Stabiliteitsverdrag in de Nederlandse rechtsorde’ [Constitutional Minimalism. The Stability Treaty in the Dutch legal order] (2013) TvCR, 6, 10. 31 Kamerstukken (Parliamentary Papers) 33319, 4, 7. 32 Opinion of the CoS of 1 March 2012, Kamerstukken (Parliamentary Papers) 33221, 4, 5.

The Netherlands  497 As a follow-up, the government proposed making the results of the pending negotiations between the government and parliament33 on parliamentary involvement in the EFSF decisionmaking also applicable to the ESM.34 These negotiations resulted in a so-called Information Protocol (Informatieprotocol), which is contained in a letter of the Minister of Finance to the Lower House.35 The Protocol, in short, stipulates that the Dutch minister in the Board of Governors of the ESM will not consent to a decision to provide for aid before s/he has discussed the matter with the Lower House. The Lower House is immediately informed, if necessary confidentially, of any request for financial support by a eurozone state. Also, the documents that the Board of Governors uses in its decision-making processes, such as the Commission’s assessment of the financialeconomic situation of the state seeking assistance, the draft Memorandum of Understanding, and the Financial Assistance Facility Agreement, are submitted to the house. Within seven days of the submission of these documents, and in principle before the Board of Governors takes its decision, the government will announce its position on the said application and discuss it with the house. If the anticipated moment of decision-making in the Board of Governors’ time is too short for a genuine exchange of views between government and house, the government will make a parliamentary reservation in the Board. This entails the obligation not to take irreversible decisions before consultation with the house has taken place. Also, in case the emergency procedure ex Article 4(4) of the ESM Treaty is followed, the government will, if possible, enter into a debate with the house before a decision is taken, but if this is not possible, it will not make a parliamentary reservation in the Board. According to the government, that would not be reasonable because in that case, in the opinion of both the European Commission and the ECB, it is necessary to make a decision without delay to ensure the economic and financial stability of the eurozone.36 We add that in that case, a parliamentary reservation would also be useless, as the consent of the Dutch government is not required under the emergency procedure. The arrangement in the Information Protocol is formally merely of political nature. However, a working group of a Standing Committee of the Lower House considers that it effectively gives the Lower House a veto power.37 Also, the scope of the Information Protocol is limited. It only extends to applications for aid in the strict sense, but not to the conditions under which the aid is granted. Also, the Protocol is not applicable to decisions to amend the aid instruments provided for in the Treaty and to decisions calling in authorised unpaid capital (Article 9 ESM Treaty).38 However, the latter decisions are arguably covered by the budgetary legislature’s decision to insert a warranty obligation in the budget acts for the Ministry of Finance of 2012 and later years (above III.A. 2.b).39

33 See Kamerstukken (Parliamentary Papers) 21 501–07, 877. 34 Kamerstukken (Parliamentary Papers) 33221, 3, 13. 35 Brief van de Minister van Financiën aan de Voorzitter van de Tweede Kamer der Staten-Generaal (Letter of the Minister of Finance to the chairman of the Upper House) of 15 December 2014, Kamerstukken (Parliamentary Papers) 21501-07, nr 1217. 36 Idem, 4. 37 Rapport van een werkgroep uit de commissie voor Rijksuitgaven van de Tweede Kamer der Staten-Generaal, ‘Aandacht voor het parlementair budgetrecht in Europees perspectief ’, annex to Kamerstukken (Parliamentary Papers) 31597, 7, 29. 38 Suzanne Poppelaars, ‘Een Europees Monetair Fonds en de positie van het Nederlandse parlement’ (2018) TvCR, 342–55, 347. 39 Act of 5 July 2012 amending the budget of Ministry of Finance (IXB) for the year 2012 (Incidental supplementary budget act ESM) [Wet van 5 juli 2012 tot wijziging van de begrotingsstaat van het Ministerie van Financiën (IXB) voor het jaar 2012 (Incidentele suppletoire begroting ESM)], Staatsblad 2012, 369.

498  Jan-Herman Reestman, Monica Claes b)  An Intergovernmental ESM Terminus or Intermediate Station? In its advice on the bill approving the ESM Treaty, the CoS remarked that due to the intergovernmental character of the Treaty, democratic control under the Treaty only exists to the extent that ministers are held accountable by their national parliaments for their share in the functioning of the ESM. However, these ministers cannot be held individually accountable for the ESM as such or its institutions. Only democratic control from the side of the EU could close that democratic gap. Nevertheless, despite these objections to the purely intergovernmental design of the ESM, the Council recommended that the Treaty be approved, in the interest of combatting the financial and economic crisis. However, an intergovernmental ESM should according to the Council not be a terminal, but only an intermediate station.40 The government did not agree. It replied that the ESM treaty has a specific task that does not necessarily have to be performed in an integrated EU context and good public and democratic control was guaranteed by the involvement of the national and European Courts of Auditors.41 But it did not exclude ‘further’ integration of the ESM into the EU legal framework in the future.42 The adherence of the government to intergovernmental character of the ESM was at the time and still is, almost generally shared, not only in politics but also in scholarship. For instance, the Advisory Council on International Issues (Adviesraad Internationale Vraagstukken (AIV)) advocates a strong involvement of national parliaments in the control of support operations for countries that face acute financial problems because, after all, it concerns the transfer of national funds.43

III.  Constitutional Obstacles to EMU Integration A.  Revealed Obstacles by the Implementation of the Crisis Management Measures Within and Outside the EU In the Netherlands, the implementation of the crisis management measures has not encountered any serious constitutional obstacles, but did raise several domestic constitutional questions.44

i.  Implementation of the Six Pack and the Two Pack To the extent that it needed implementation, the Six Pack45 and Two Pack legislation was implemented by aligning the existing budgetary, legal framework in the Government Accounts Act 40 Kamerstukken 33221, 4, 4. 41 See Art, 24 of the ESM By-Laws. 42 Kamerstukken (Parliamentary Papers) 33221, 3, p 8–9; 43 AIV, ‘Is de Eurozone stormbestendig? Over verdieping en versterking van de EMU’, Advies no. 105, July 2017, 37 (available, also in German, French and English, at ; see also the government’s reaction to study by the AIV in a letter to the Lower House, Kamerstukken (Parliamentary Papers), 21501-20, 1262, 3–4. 44 See also Suzanne Poppelaars, Het nationale budgetrecht en Europese integratie (Alphen aan den Rijn, Wolters Kluwer, 2018). 45 Regulation 1175/2011 amending Regulation 1466/97: On the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies; Regulation 1177/2011 amending Regulation 1467/97: On speeding up and clarifying the implementation of the excessive deficit procedure; Regulation 1173/2011: On the effective enforcement of budgetary surveillance in the euro area Regulation 1176/2011: On the prevention and correction of macroeconomic imbalances; Regulation 1174/2011: On enforcement action to correct excessive macroeconomic imbalances in the euro area; Directive 2011/85/EU: On requirements for budgetary frameworks of the Member States.

The Netherlands  499 (Comptabiliteitswet) and by a new act of parliament, the Act on Sustainable Public Finances, the HOF Act (Wet Houdbare Overheidsfinanciën).46 This HOF Act also implements the various obligations of the Fiscal Compact, such as the insertion of the balanced budget rule in national law and the establishment of an independent authority monitoring compliance with EU fiscal rules. In the Netherlands, ‘(t)he estimates of the State’s revenues and expenditures shall be laid down by Act of Parliament’ (Article 105(1) Constitution). In fact, the state’s budget is laid down in several acts of parliament, one for every government department. It is the Government Accounts Act that prescribes how budget bills should be presented to the States-General. In 2016, when the act was entirely revised, two provisions were inserted that relate to the Six Pack and the Two Pack. The first provision is inspired by the duty of the national government to submit its stability plan, or if need be its recovery plan, for the following fiscal year to the Commission before 1 May.47 Article 2.22 of the Government Account Act prescribes that those plans also have to be submitted to the two houses of the States-General. The second provision inserted in the Government Accounts Act relates to the duty contained in Article 4(3) of Regulation 473/2013, which requires the budget for the central government for the following year in principle to be adopted and made public not later than 31 December. This principle was, and is, problematic in the Netherlands. Like other bills, budget bills are always first discussed in the Lower House, and then by the Upper House. Although the Government Accounts Act already implied that the budget acts had to be adopted before 1 January of the fiscal year to which they apply, the Upper House in practice almost always adopts budget bills after that date. This practice is a consequence of the right of each house to determine its own agenda. The government first considered the possibility of bringing budgetary practice in line with the Regulation by explicitly providing in the Government Accounts Act that budget acts had to be adopted before the new fiscal year, force majeure excepted.48 That would have restricted the procedural autonomy of both houses, and especially the Upper House, which have the dilemma of either breaking the law or rushing its discussion of the budget to meet the deadline. In the end, a practical solution was found that respects both the right of each house to determine its agenda and does not put a time limit on budgetary discussions. According to Article 2.24 of the Government Accounts Act, budget bills have to provide for a provision regulating the entry into force of budget acts on 1 January of the year to which they relate. So even if the parliamentary budget procedure is not completed on that date, the entry into force will take place with retroactive effect from 1 January.49 The HOF Act has implemented the various obligations in Directive 2011/85/EU.50 The Directive, amongst other things, prescribes that the Member States have to cover all sub-sectors of the national government when they put in place the required country-specific numerical fiscal rules and various forms of fiscal planning (Arts 5 and 13 of the Directive). These demands are

46 Wet of 11 December 2013, Staatsblad 2013, 531. 47 Arts 3 and 4 of Regulation 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies; See also Art 4 f Regulation 473/2013, according to which the member states before the same date to send in their medium-term fiscal plans at the same. 48 Kamerstukken (Parliamentary Papers) 33181, A, 8. 49 The standard formulation is as follows: ‘This act shall enter into force on 1 January of the current financial year. If the Bulletin of Acts and Decrees in which this law is placed is issued on or after this date of 1 January, it shall enter into force on the day following the date of issue of that Bulletin of Acts and shall be retroactive to 1 January’. 50 For the details, see the memorandum of explanation of the Act, Kamerstukken (Parliamentary Papers) 33416, 3, 11.

500  Jan-Herman Reestman, Monica Claes the consequence of the fact that the EU fiscal rules are addressed to the Member States and concern not only the central government and the social funds but also, amongst others, local governments, in the Netherlands inter alia the municipalities and provinces. The Directive also demands that the country-specific numerical fiscal rules shall contain specifications about the consequences in the event of non-compliance (Art 6(c) of the Directive). To meet all these demands, the HOF Act prescribes that the local governments are obliged to make an effort equivalent to those of the central government and the social funds, to ensure compliance with EU fiscal rules. The Minister of Finance, in agreement with the other relevant ministers and after consultation with representative organisations of municipal and provincial authorities, determines what is regarded as an ‘equivalent effort’ for the local governments jointly. This effort is itemised in a share for the municipalities jointly and the provinces jointly (Art 3 of the HOF Act). In the bill for the HOF Act, the government proposed two penalty mechanisms, one for the situation in which the municipalities jointly or the provinces jointly would exceed their collective share in the EMU balance, but the Netherlands were not fined by Brussels (Art 6 of the HOF Act), the other for a similar situation in which the Netherlands were fined by Brussels (Art 7 of the HOF Act). Representatives of local authorities claimed that the arrangement in the bill, and more ­specifically the possibility to fine municipalities or provinces even if Brussels did not fine the Netherlands, does not fit the constitutional relations between the central and local governments, and is at odds with the lower governments’ autonomy. From a strictly formal constitutional perspective, the national legislature could do what the government proposed. It is entitled to determine the lower governments’ competences, supervision over their institutions and financial relationships with the central government on the condition that a certain amount of autonomy remains.51 Nevertheless, the States-General has been sensitive to the complaints. The Lower House adopted several amendments to soften the arrangement and especially the penalty mechanisms. For instance, it adopted the rule that if the ministers want to sanction local governments, they have to inform the Lower House of their intention first and the ministers may only implement the sanction after four weeks have elapsed unless the house has pronounced itself against it (Art 9 of the HOF Act).52 Under pressure from the Upper House,53 the mechanism which made it possible to fine the lower governments even when the Netherlands were not fined by Brussels, was replaced by a so-called ‘correction mechanism’. As the Upper House does not have the right of amendment, the insertion of a correction mechanism in the HOF Act required a new act of parliament.54 The correction mechanism still makes it possible to fine local governments, but only as a last resort, if all other means to make the lower governments return to the required fiscal parameters (consultations between the central government and lower governments; measures laid down in an Order of Council) fail.55

ii.  The Fiscal Compact and the ESM Treaty The Fiscal Compact and the ESM Treaty have been approved as ordinary treaties with ordinary acts of parliament, and with strong support in the States-General. Geert Wilders, leader of the 51 Art 132 in combination with Art 124(1) Constitution. 52 Wytze van der Woude, ‘Houdbare overheidsfinanciën en gemeentelijke autonomie. Hoe Europese begrotingsnormen interbestuurlijke verhoudingen raken’ (2013) Ars Aequi, 916. 53 Kamerstukken (Parliamentary Papers), 33416 and 33540, G, 4. 54 Wet of 4 June 2015, Staatsblad 2015, 305. 55 Memorandum of explanation of the bill amending the HOF Act, Kamerstukken (Parliamentary Papers), 33961, 3, 2.

The Netherlands  501 Eurosceptic and populist PVV, did bring interlocutory proceedings in the civil court, asking for an injunction to prevent the state from approving and ratifying the ESM Treaty. At the time, the government did not have full powers: the government had resigned, and elections were pending. The judge denied the action, holding that the claim asked him to intervene in the legislative process, which the Constitution endows to the government and the parliament acting together (Art 81 Constitution). The decision is fully in line with the very restricted role of the courts in European integration policy and the participation in the EU.56 a)  Implementation of the Fiscal Compact The most important constitutional issue raised by the Fiscal Compact was whether the Netherlands was capable of implementing the balanced budget rule in national law ‘through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes’, as required by Article 3(2) of the Fiscal Compact. That provision seems to imply that the rule has to be laid down in an act that binds the budget authority. If that were the correct interpretation, the rule in the Netherlands should have been laid down in the above-legislative national provision, because the budget authority in the Netherlands is the legislature (Art 105(1) Constitution). However, implementation in an above-legislative act was impossible in the Netherlands, for two reasons. First, Dutch constitutional law does not provide for (organic) laws with a status in between that of the Constitution and those of acts of parliament, ie, above-legislative and infraconstitutional. There is thus no ‘fast-track’ solution that would avoid constitutional amendment and at the same time formally puts the rules beyond the reach of the ordinary legislature. Second, the Fiscal Compact entered into force on 1 January 2013 and already a year later, on 1 January 2014, its budgetary arrangement had to be implemented by the Contracting Parties. Inserting the budget rule in the Constitution would have required two readings in parliament and between general elections. Even if the government had wanted to insert the rule in the Constitution, there was practically no time to do so. The only possibility for a swift implementation of the budget rule was, therefore, the implementation by an ordinary act of parliament, ie, by the HOF Act.57 Legally speaking, the HOF Act does not bind the Dutch government when introducing (budget) bills or the Dutch legislature when adopting a budget act. It is an unwritten principle of Dutch constitutional law that the legislature cannot bind itself (or its successor). For that reason, the question has been raised whether the Netherlands has correctly implemented the Fiscal Compact’s balanced budget rule. On the other hand, it has been argued that perhaps the Netherlands’ adherence to the monistic vision on the relationship between national and international law could come to the rescue. Upon ratification, the Fiscal Compact has become part of the Netherlands’ legal order with (at least) above-legislative ranking. Therefore, if the budget legislature disregards the balanced budget rule in the HOF Act, it would at the same time disregard the Fiscal Compact which is

56 Rb Den Haag, decision of 1 June 2012; ECLI:NL:RBSGR:2012:BW7242. 57 Since 1994 the Dutch budget is based on a policy according to which the (authorised) expenditures for the various ministerial departments are maximised for a number of years, and neither a financial setback nor a financial windfall allows for an increase of the expenditures. Art 2, para 3, (a) (i) of the HOF Act makes it a legal obligation for the Dutch supra of finance to conduct that policy in accordance with, among other things, ‘the [medium-term budgetary objective] for the structural EMU-balance in force. It is by this provision that the Compact’s balanced budget rule is deemed to be implemented. As is evident, this provision in the HOF Act does not quantify the balanced budget rule and does not even refer to it directly: the implementation is based on the assumption that the Netherlands has a medium-term budgetary objective which conforms to the rule in the Fiscal Compact.

502  Jan-Herman Reestman, Monica Claes not only binding on the Netherlands in the international realm but also part of the domestic legal order, and hence binds the legislature domestically. In such reading, any implementation of the balanced budget rule in domestic law would, in fact, be redundant to make the golden rule binding on the legislature. In other words, it could be argued that the Netherlands has complied with the implementation duty in Article 3(2) Fiscal Compact simply by ratifying the Compact.58 The European Commission, in its report under Article 8 of the Fiscal Compact of 22 February 2017, was not entirely convinced by that reasoning. It nevertheless found that the Netherlands complied with the implementation requirement. It did so by taking into account two issues. The first is the ‘formal public commitment’ of Dutch authorities that the national legal framework requires that the budget bills are adopted in compliance with the Compact’s budget rule. According to the Commission, ‘such public commitments reinforce the binding status of the national rules‘. The second redeeming issue taken into account by the Commission is the ‘robustness of the monitoring mechanism’ set up in accordance with the Fiscal Compact, by which, according to the Commission, enforcement of the budget rule ‘appears also to be guaranteed’.59 Both the Fiscal Compact (Art 3(2)) and Regulation (EU) 473/2013 (Art 5) require the establishment of an independent institution monitoring compliance with the European fiscal rules. This function is, inter alia, exercised by the Advisory Division of the CoS, which of old advises on legislative proposals. On the basis of the HOF Act (Art 2(6)), the Council now advises on a potential ‘recovery plan’ (herstelplannen; see below) and on the so-called Miljoenennota (the annual Budget Memorandum). This Budget Memorandum accompanies the introduction of the various draft budget acts submitted to the Lower House on the third Tuesday of September (known as Prince’s day – Prinsjesdag). It contains a description of the most important policy choices of the government for the coming year and their costs, and the economic and financial situation of the Netherlands as such. The Council also advises, in April, on the draft Stability plan for the following fiscal year, which the government has to submit to the Commission before 1 May. If considered necessary, this may be done on other occasions.60 The ordinary members (councillors) of the CoS are nominated by Royal Decree for life (Art 74(2) of the Constitution), while ‘councillors in extraordinary service’ can be appointed for three years on the grounds of their specific expertise in the areas of legislation, jurisdiction and administration.61 The Council seems to have interpreted its supervisory role extensively, aligning it to the text of the Fiscal Compact.62 The fact that the Netherlands have outsourced the activation of the required corrective ­mechanism to the Union institutions has also contributed to the Commission’s positive evaluation of the implementation of the Fiscal Compact. Accordingly, a correction mechanism has to be triggered automatically in case of ‘significant observed deviations’ from the required

58 Jan-Herman Reestman, ‘The Fiscal Compact: Europe’s Not Always Able to Speak German’(2013) 9 EuConst, 480–500. 59 Country annex nr 17 (on the Netherlands) to the Report from the Commission presented under Art 8 of the TSCG in the EMU, COM(2017) 1201 final, 2–3. 60 See the interim assessment of 3 November 2017 of the planned budget policy or the newly appointment government Rutte III, available at www.raadvanstate.nl/begrotingstoezicht/rapportages-begrotingstoezicht.html. This advice is not provided for by the HOF Act, but based on the Wet op de Raad van State ([Act on the CoS], which gives the CoS the competence to advise whenever it deems this necessary (Art 21). 61 Art 8 of the Wet op de Raad van State [Act on the CoS]. 62 Poppelaars, Het nationale budgetrecht en Europese integratie. De juridische consequenties van Europese integratie voor het Nederlandse en het Duitse budgetrecht, 347; Michael. Diamant, Het budgetrecht van het Nederlandse parlement in het licht van Europees economisch bestuur (Leiden, Wolters Kluwer, 2017) 265–75.

The Netherlands  503 budgetary situation,63 and include the obligation to implement measures to correct the deviations over a defined period.64 According to the HOF Act, the ministers, in accordance with the opinion of the (Dutch) council of ministers, have to take ‘adequate expenditure-reducing and/ or revenue-generating measures’ if an EU Council recommendation establishes that the Dutch budgetary policy does not sufficiently respect the budgetary requirements.65 The measures that ministers have to be in accordance with the EU Council’s recommendation regarding ‘budgetary size and time’66 and must be assembled in a corrective plan (herstelplan), on which the advice of the CoS has to be obtained. It has to be presented to parliament in the form of a ‘budgetary memorandum’.67 This is fully in line with the general principles that the Commission published in the Annex to its Communication of 26 June 2012 on the basis of Article 3(2) of the Fiscal Compact. The general tendency of these principles is that the ‘(n)ational correction mechanisms shall rely closely on the concepts and rules of the European fiscal framework’.68 The Netherlands have done so by letting the EU institutions rather than an independent national supervisor decide on the triggering of the correction mechanism. In its report under Article 8 of the Fiscal Compact of 22 February 2017, the Commission noted that the HOF Act ‘does not contain specific national corrective rules’. Moreover, we would add, a ‘budgetary memorandum’ does not bind the (budget or any other) legislature. Nevertheless, the Commission also noted with satisfaction that the Dutch framework correction mechanism ‘stresses consistency with the Union budgetary surveillance framework, whereby the activation and substance of the correction are linked to recommendations made by the Union institutions’.69 b)  Implementation of the ESM Treaty The budgetary consequences of the participation of the Netherlands to the ESM have been incorporated into the budget of the Ministry of Finance – since 2012 – via an incidental, supplementary budget act. The amount of paid-in shares (4,6 billion euro) is in the budget for 2012 registered as a ‘payment obligation’ (betalingsverplichting; starting in 2012 with a payment of 1,8 billion and running until 2015), and the amount of the authorised unpaid capital (35,4 billion euro) as a ‘warranty obligation’ (garantieverplichting).70 At the instigation of the CoS, the government clarified that a decision of the Board of Governors of the ESM to increase ESM’s authorised capital stock in accordance with Article 10(1) of the ESM Treaty would amend the ESM Treaty. Therefore, it would require approval, as a new treaty, by the States-General ex Article 91 of the Constitution.71 The parliament will lose this right to approve decisions increasing the authorised capital stock if the ESM is turned into an EMF, as proposed by the Commission.72 According to the Commission’s proposal, the Board of

63 Art 3(1)(e) Fiscal Compact. 64 Art 3(1)(e) Fiscal Compact. 65 Art 2(4) jo. Art. Wet 2(5) Wet HOF. 66 Art 2(5) Wet HOF. 67 Resp Arts 2(6) and 2(8) Wet HOF. 68 EC, COM(2012) 342, Communication on Common principles on national fiscal correction mechanisms. 69 EC, Country annex no 17 (on the Netherlands) to the Report from the Commission presented under Art 8 of the TSCG in the EMU, COM(2017) 1201, 4. 70 Act of 5 July 2012 amending the budget of Ministry of Finance (IXB) for the year 2012 (Incidental supplementary budget act ESM)[Wet van 5 juli 2012 tot wijziging van de begrotingsstaat van het Ministerie van Financiën (IXB) voor het jaar 2012 (Incidentele suppletoire begroting ESM)], Staatsblad 2012, 369. 71 Explanatory memorandum to the legislative proposal for the approval of the ESM Treaty, Kamerstukken (Parliamentary Papers) 33221, nr 4, p 6. 72 Kamerstukken (Parliamentary Papers) 33221, nr 3, p 11; Kamerstukken 33221, nr 4, p 6.

504  Jan-Herman Reestman, Monica Claes Governors, subject to approval by the Council of Ministers, may decide to increase the capital stock of that fund autonomously, without the consent of any parliament, European or national. From a Dutch constitutional perspective, this is not unproblematic, because under Article 105 of the Constitution, the government may only enter into new financial obligations after approval by the States-General in a budget act. We will come back to this issue under III.E.2.b.

B.  Obstacles to the (Further) Transfer of Powers in the Field of EMU Through Treaty Amendments In Dutch constitutional law and legal thinking, there are no clear limits to EU integration, including in the field of the EMU. There is no legal concept of an immutable core, of ‘core competences’ or of a ‘constitutional identity’ that is protected against transfers of powers to the EU. Nevertheless, some developments may point in the direction of very rudimentary thinking in terms of a stable core. The pending proposal for a new general provision in the Constitution can be seen as an attempt to make the unwritten and implicit core constitutional principles explicit.73 Moreover, as we have seen, Article 91(3) of the Constitution allows for treaties which deviate from the Constitution to be approved with a two-thirds majority of the votes cast by both houses of the States-General.74 However, according to the CoS in an advisory opinion of 1999, that provision does not allow for the approval of just any treaty with such majority.75 For instance, the legislature would not be allowed to approve a treaty which not only deviates from the Constitution but also applicable international obligations of the Netherlands. The Council by way of example referred to the treaties establishing the EU and to the ECHR. According to the Council, the same may apply to treaties which deviate from provisions of the Constitution which contain substantial safeguards, in particular the fundamental rights in Chapter 1 of the Constitution. In the Council’s view, the infringement of fundamental rights under these circumstances can be so fundamental that even approval of it in accordance with the procedure of Article 91(3) of the Constitution would not be acceptable. It may be clear that the abovementioned limits to further EU and EMU integration are primarily hypothetical. At the same time, there are genuine political and constitutional obstacles to further EU integration, which to a large extent run parallel and can be overcome if the government can muster sufficient political support in the States-General. Politically, certain forms of further integration are often considered too far-reaching to affect the sovereignty of the Netherlands or be an infringement of the ‘identity’ of the Netherlands or its people. As said before (above I.B), especially in the context of the economic crisis, there is a

73 Kamerstukken (Parliamentary Papers) 34516. Wet van 9 maart 2018, houdende verklaring dat er grond bestaat een voorstel in overweging te nemen tot verandering van de Grondwet, strekkende tot het opnemen van een algemene bepaling [Declaration that there is a reason to consider a proposal to amend the Constitution to include a general provision]. The preparatory works do, however, emphasise that the provision is not intended as an eternity clause and does not have a higher rank than other provisions of the Constitution. On the provision, see eg, Maarten Stremler, ‘De voorgestelde algemene bepaling als fundamentele constitutionele norm’ (2018) TvCR, 204–20. 74 Note that the Charter of the Kingdom (see note 1), which ranks above the Netherlands’ Constitution, does not contain a comparable provision. This implies that a treaty that deviates from the Charter can only be ratified after the Charter has been amended, which would require the consent of the States-General, and the parliaments of the other three countries making up the Kingdom of the Netherlands (Art 55 Charter; see on this Leonard F Besselink et al, De Nederlandse Grondwet en de Europese Unie (Groningen, Europa Law Publishing, 2002), 45, and the literature referred to there). However, the Charter plays no role whatsoever in the discussions on the future of EU integration. 75 Advice of the Raad van State of 19 November 1999, Kamerstukken (Parliamentary Papers) 26800 VI, A, 6.

The Netherlands  505 rather strong narrative against further transfers of sovereignty and against a political union.76 However, these arguments are not framed in legal terms, not related to the Constitution77 or identified as legal principles that restrict European integration. More specifically, the rules on fiscal discipline are considered necessary for the operation of the EMU, more particularly to bind other states.78 There is generally broad support for this position in parliament, although the fate of the Fiscal Compact hung in the balance for a long time. Constitutionally, treaties that further EU and EMU integration have to be approved by both houses of the States-General. For approval, generally ordinary majorities in both houses suffice, but a two-thirds majority of the votes cast is necessary where the treaty deviates from the Constitution or leads to such deviation (Art 91(3) Constitution). The application and interpretation of Article 91(3) of the Constitution have, however, traditionally been very EU integration friendly. First, the decision on the compatibility of a treaty with the Constitution is exclusively in the hands of government and parliament, because Article 120 of the Constitution forbids courts to review the constitutionality of treaties. This means that ordinary majorities in both houses of the States-General decide whether or not a treaty deviates from the Constitution.79 Secondly, the interpretation of the concept ‘deviating from the Constitution’ has always been literalist and restrictive.80 For instance, a treaty that causes a loss of sovereignty, or infringes the spirit, intention or system of the Constitution, is not considered as deviating from the Constitution. Also, the dominant opinion is that constitutional provisions, which reserve the regulation of certain subject matters for the legislature, only have an internal effect, ie, in constitutional relations within the Netherlands, but not in external relations. The transfer of the relevant competences to an international organisation is not considered as deviating from the Constitution (see also above under Sec II.A). For example, the claim81 that the introduction of the common currency by the Maastricht Treaty deviated from Article 106 of the Constitution (‘The monetary system shall be regulated by Act of Parliament’) was rejected on the basis of this argumentation. Deviation from the Constitution is only deemed to take place where treaty provisions are incompatible with (the contents of) specific constitutional provisions, ‘also in view of the latter’s underlying basic assumptions and intentions’.82 Examples are treaty obligations which derogate from fundamental

76 On the official Dutch position on EMU reform, see Schout, ‘The Netherlands as constructive EU partner searching for an EU narrative’, 60. Among the political parties, Wilders’ PVV and Baudet’s Forum voor Democratie are most critical of further integration, which they see as threatening the identity of the Netherlands. 77 This is also due to the literalist and restrictive interpretation of the term ‘deviating from the Constitution’ in Art 91, para 3, Constitution. 78 See the government’s position of 27 November 2017 on the future of the EMU, Kamerstukken (Parliamentary Papers), 21501-20, 1263. 79 The institutions that are involved in the making of an act of parliament may have different opinions on the constitutionality of a treaty, as is shown by the procedure of approval of the treaty on the basis of which the suspects of a bomb attack on a PanAm aircraft above the Scottish town of Lockerbie were detained, and tried, in the Netherlands, by a Scottish tribunal. According to the government and the Lower House, this treaty did not deviate from the Constitution, while according to the CoS and the Upper House the treaty deviated from Art 15(2) of the Constitution (‘Anyone who has been deprived of his liberty other than by order of a court may request a court to order his release. In such a case he shall be heard by the court within a period to be laid down by Act of Parliament …). See on the consequences of diverging views of government and the houses of the States-General on the question whether or not a treaty deviates from the Constitution, Leonard F Besselink et al, De constitutionele bepalingen over verdragen die van de Grondwet afwijken en de opdracht van bevoegdheid aan internationale organisaties, Kamerstukken I, 2002/03, 27 484 (R 1669), nr 298. 80 Ibid, 26. 81 AW Heringa, De Verdragen van Maastricht in strijd met de Grondwet, NJB 1992, 749–52. 82 Opinions of the Raad van State of 23 December 1983 (cruise missiles), Kamerstukken (Parliamentary Papers) 17980, A-B, p 1–3; and of 19 November 1999 (foreign jurisdictions), Kamerstukken (Parliamentary Papers) 26800 VI, A, 3.

506  Jan-Herman Reestman, Monica Claes rights provisions that have no derogation clause,83 or lead to very profound infringements of fundamental rights or infringements of applicable international obligations.84 In view of the specific subject matter of this report, it should be added that a treaty amendment, or an EU act, that would give the EU Commission, or other EU institution (eg, a future European Minister of Economy and Finance), the competence to impose ‘budgetary and economic decisions’ on the Member States under certain circumstances,85 would arguably deviate from Article 105(1) of the Constitution, which stipulates that the budget shall be laid down by an act of parliament. As we have already seen, that provision intends to make government expenditure subject to prior authorisation by parliament (authorisation function) and consequently give parliament a decisive say on the allocation of the Kingdom’s revenues (allocation function). If the Commission acquires the power to issue binding instructions on the level of specific expenditures, such as social benefits and pensions, parliament will lose its decisive say.86 Arguably, also a veto power for the Commission in case the general level of expenditure in the budget was too high would deviate from Article 105(1) of the Constitution. Here a parallel may be drawn with proposals for the introduction of a binding corrective referendum in the Netherlands. According to these proposals, a legislative proposal adopted by the States-General could be subjected to a national referendum on the request of a certain number of voters. If the electorate in the referendum voted against the proposal, the proposal would lapse by operation of law.87 It goes (almost) uncontested in the Netherlands that for the introduction of such a referendum Article 81 of Constitution, which provides that acts of parliament shall be enacted by the government and the States-General, would have to be amended. The amendment would have to provide for the interference of the electorate in the process of enactment of acts of parliament.88 In the same vein, it may be argued that Article 105(1) of the Constitution would have to be amended to provide for the interference of the Commission in the process of the enactment of budget acts. Following the judgment of the German Bundesverfassungsgericht on the ESM Treaty,89 it has further been argued that if the Netherlands entered into a financial obligation with unlimited financial consequences, this would be contrary to the parliament’s budget authority.90 In the meantime, two additional potential legal obstacles for further EU/EMU integration have been removed from the legal order of the Netherlands. Since 1 July 2015, the Advisory

83 Cp. Opinion of the Raad van State of 15 June 2000 (Statute of Rome regarding the International Criminal Court), Kamerstukken (Parliamentary Papers) 27484 (R 1669) A, 4–5. 84 Opinion of the Raad van State of 19 November 1999 (foreign jurisdictions), Kamerstukken (Parliamentary Papers) 26800 VI, A, 5–6. In practice, until now three treaties have been considered to deviate from the Constitution: the Treaty of establishment of the European Defence Community in 1954 (inter alia because it deviated from the provision which declares that there shall be armed forces of Kingdom over which the Government shall have supreme authority); the Treaty with Indonesia on the transfer of sovereignty of New Guinea in 1962 (which inter alia deviated from a provision in which New Guinea was mentioned as part of the Netherlands); and the Statute of the International Criminal Court (which deviated from the provisions which declare that the King, for all his acts, and MP’s and ministers, and anything they say in parliament, are inviolable). 85 As proposed by the EC, COM(2012) 777/2, A blueprint for a deep and genuine economic and monetary union Launching a European Debate, 31[‘a means of imposing budgetary and economic decisions on its members, under specific and well-defined circumstances’). 86 See also Diamant, van Emmerik, ‘Het Nederlandse budgetrecht in Europees perspectief ’, 121. 87 See the proposed Art 89d of the Constitution in the Act of 30 September 2014, Staatsblad 314, 355. This act was rejected in the second reading of the constitutional amendment procedure by the Lower House. 88 See the proposed amendment of Art 81 of the Constitution, ibidem. 89 ECLI:DE:BVerfG:2012:rs20120912.2bvr139012. 90 M Diamant, Het budgetrecht van het Nederlandse parlement in het licht van Europees economisch bestuur (Leiden 2017), 68–69.

The Netherlands  507 Referendum Act91 made it possible for 300,000 Dutch citizens to request an advisory referendum on acts of parliament that had been adopted but not yet entered into force. Among the acts that could be subject to a referendum were also those approving EU treaties. On this basis, a referendum on the mixed Association Agreement with Ukraine took place on 6 April 2016, with a majority 61 per cent of the votes cast rejecting the Approval Act.92 However, considering that the Advisory Referendum Act ‘had not met expectations’,93 the governing majority repealed it.94 The second potential obstacle that has been removed concerns a binding referendum on EU treaties. The Lower House rejected a constitutional amendment to that effect in September 2017.95 Although the State Commission on the functioning of the Dutch parliamentary system in its interim-report of 21 June 2018 referred to the introduction of a binding corrective referendum as a possible means for improving the system of democracy,96 it will, due to the very rigid constitutional amendment procedure of the Netherlands, take years before such binding referendum can be introduced – if it ever will.

C.  Scrutiny of Secondary EU Law, Especially Ultra Vires Doctrine In the Netherlands, courts do not review whether secondary EU law is compatible with the Constitution or is ultra vires. Nevertheless, review of draft secondary EU law by political institutions is neither entirely impossible nor absent, as we will now see. In October 2001, the Minister of Justice asked the CoS for advice on the compatibility of the draft Framework Decision on the European Arrest Warrant with both the Treaty on the EU and the Constitution of the Netherlands. The Council opined that the draft fell within the EU competences under the said Treaty. It also thought that the draft was not incompatible with the Constitution. More specifically, the Council concluded that surrender on the basis of the Framework Decision did not deviate from Article 2(3) of the Constitution, according to which ‘(e)xtradition may take place only pursuant to a treaty’. A ‘reasonable’ interpretation of the term ‘pursuant to a treaty’ in that provision allowed, according to the Council, for the conclusion that a treaty basis suffices for extradition. Moreover, the Council reasoned that the grounds for

91 Wet of 30 September 2014, houdende regels inzake het raadgevend referendum (Act of 30 September 2014, containing rules concerning the advisory referendum), Staatsblad 2015, 122. 92 With a turnout of 32.28 per cent, the threshold for a valid referendum was met. In accordance with the Referendum Act, the outcome was non-binding, but the government had to ‘at the earliest convenience’ propose a new act to either gain parliamentary approval for either retraction of the approval act or for its entry into force. The government secured an additional agreement between the 28 Member States. On the Ukraine referendum, see the various contributions in Kristof Jacobs (ed), ‘Special issue: Referendums in times of discontent’ (2018) 5 Acta Politica; on the EU ‘solution’ to the referendum, see Ramses Wessels, ‘The EU Solution to Deal with the Dutch Referendum Result on the EU-Ukraine Association Agreement’ (2016) European Papers, 1305–09. 93 34845, 3, p 1–2. The government inter alia argued that although the Advisory Referendum Act only obliges the legislature to reconsider a law or treaty rejected in a referendum, many voters believed that such rejection entailed the material obligation for the legislature not to enter into force the law or to approve the treaty. Therefore, if the legislature nevertheless would decide to let the law enter into force or approve the treaty, this would not be accepted by many voters. The instrument of the national advisory referendum would therefore only widen ‘the gap’ between voters and national political institutions, which it was intended to narrow. 94 Wet van 10 juli 2018 tot intrekking van de Wet raadgevend referendum (Act van 10 juli 2018 repealing the Advisory Referendum Act), Staatsblad 2018, 214. The coalition was of the opinion that support for referendums had decreased and that the Act was insufficiently clear. 95 For the proposal, see the Wet of 30 September 2014, Staatsblad 2014, 355. 96 Interim report of the Staatscommissie Parlementair Stelsel, Tussenstand, 53–56, available at www.staats commissieparlementairstelsel.nl/actueel/nieuws/2018/06/21/tussenstand-staatscommissie-mogelijke-oplossingen-omdemocratie-rechtsstaat-en-parlement-te-versterken.

508  Jan-Herman Reestman, Monica Claes the treaty requirement in Article 2 of the Constitution is that entering into a treaty reflects a certain amount of confidence in the administration of justice in the other state-party. There was, according to the Council, ‘no reason to doubt that this guarantee has been complied with of the embedding of the draft in the EU Treaty.’97 However, this does not amount to the scrutiny of secondary legislation ex post, which is highly unlikely in the Dutch context. Moreover, the ultra vires test of the draft Framework Decision can be explained because it concerns a decision taken in the former Third Pillar of the EU, in which the supervision of the ECJ was restricted.

D.  Limits to ‘European Integration Outside the EU Legal Order’ In the Netherlands, there are no other limits to EU integration outside the EU legal order than to EU integration proper. Any limits that apply to the latter, also apply to the former.

E.  Constitutional Feasibility Study of EMU Reform Proposals Usually, the government of the Netherlands submits a memo (‘fiche’) on proposals or communications to the Lower House, which the Commission has submitted to the Council and/or the European Parliament. In those memos, the government sketches the content of the proposal, discusses the EU’s competence to take the proposed decision, and gives its first opinion on the subsidiarity, the proportionality and the political desirability of the proposal. The memos on the proposals for reform of the eurozone presented by the EC in December 2017 show that the government has mixed views about their political and sometimes constitutional desirability and feasibility. In both respects, the reception of the Commission’s communications concerning the introduction of a European automatic macroeconomic stabilisation function and a European Minister of Economy and Finance was even downright negative. We will briefly discuss the receipt of the proposals in the Netherlands on the basis of these memos. As regards possible constitutional obstacles to the adoption of the proposals, we can be very short: there are none, at least no specific ones. The proposed decisions do not belong to those decisions to which the States-General under national law must consent before the Dutch minister can agree in the Council of Ministers (see under IV.A). In short, the government is constitutionally entirely free to assent to the proposals in the Council. Of course, there may be political pressure from the States-General, under the ever-present shadow of the possibility of a motion of no-confidence, to not do so, or to do so only under specific conditions.

i.  Integration of the Fiscal Compact The Commission’s Proposal for a Council Directive ‘laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’ aims among other things to incorporate the fiscal rules of the Fiscal Compact in the EU legal order.98 The obligations in the proposal to set up a national framework of binding and permanent 97 Opinion of the Raad van State of 19 October 2001, Advies WO3.01.0523/I/A; see also the letter of the Minister of Justice to the Lower House of 25 October 2001, Kamerstukken (Parliamentary Papers) 23490, 209. 98 EC, COM(2017)824, Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States.

The Netherlands  509 country-specific numerical fiscal rules, including a medium-term budgetary objective and fiscal planning and correction mechanism, were already included in the Fiscal Compact, do not conflict with national constitutional principles or rules, and have been met by the HOF act (see above III.A. 2.a). However, the proposed Directive also contains some new obligations which raise the following political and constitutional issues. a)  Political Issues Politically, the government is ‘partly positive and partly negative’ about it. It is positive about the integration of the rules in the EU legal framework as such, but negative about the implicitly proposed weakening of the Compact’s fiscal rules. The Commission’s proposal does not copy the quantified medium-term objective of the Fiscal Compact: a maximum structural mediumterm objective of 0,5 per cent GDP, or 1 per cent if the national debt is below 60 per cent GDP.99 Instead, Article 3(1)(a) of the proposal ‘merely’ requires that the Member States have a structural medium-term fiscal objective which ensures that the ratio of government debt to gross domestic product at market prices does not exceed the reference value set out in Article 1 of Protocol No 12 on the excessive deficit procedure or approaches it at a satisfactory pace.

That reference value is 60 per cent. In other words, the Member States would need a mediumterm budgetary objective that helps to bring down government debt to 60 per cent GDP at a ‘satisfactory pace’. Whether this proposal indeed leads to a relaxation of the Fiscal Compact’s balanced budget rule, as the government fears, seems to depend on the interpretation of terms ‘satisfactory pace’. However, it should not be forgotten that the Compact’s budget rule is only marginally stricter than a similar budget rule in Article 2a of the amended Regulation 1466/97, which requires that the Member States have a maximum medium-term budgetary objective of 1 per cent GDP. This requirement remains in place. Hence, the room for manoeuvre for the Member States remains small. b)  Constitutional Issues A possible constitutional sting in the proposal is that the Member States must adopt a mediumterm growth path of government expenditure, which has to be set as soon as a new government takes office and then respected by the annual budgets throughout ‘the term of the legislature as established by the constitutional legal order of the relevant member state’ (Art 3(1)(b) of the proposal). The term of office of the Lower House in the Netherlands is four years (Art 54 Constitution). However, before those years have lapsed, a new government may have taken office due to a government crisis. Two scenarios can be distinguished in that case. The first is that a new government takes office after dissolution of the Lower House and general elections have taken place (Art 64 Constitution). The second is that a new government is formed without elections, ie, simply based on a change in the coalition of factions in the Lower House which supports the government.100 It is possible

99 Kamerstukken (Parliamentary Papers) 34856, 2, 4. 100 Paul P Bovend’Eert and Henk Kummeling, Het Nederlandse parlement, (Alphen aan den Rijn, Wolters Kluwer, 2017), 501–02.

510  Jan-Herman Reestman, Monica Claes to interpret Art 3(1)(b) of the proposal in such a way that their predecessors’ growth path binds the new governments in both situations. However, we may assume that this is not the intention of the Commission and that any new government within the parameters of EU may establish a new growth pact. Another constitutional issue raised by the proposed Directive is related to the role of the required independent institution monitoring compliance with the European fiscal rules. The establishment of such an institution as such is already required by the Fiscal Compact. Article 3(5) of the proposal holds the new requirement that the Member States ensure that the independent institution – in the Netherlands, the CoS – shall call upon the budgetary authorities to activate the correction mechanism in the event of a significant observed deviation from the medium-term objective or the adjustment path towards it. This obligation is not constitutionally problematic, but its introduction probably requires an amendment of the HOF.101 However, the ‘comply or explain’ obligation contained in Article 3(6) of the proposal is constitutionally problematic. The provision demands that if the CoS finds that the medium-term objective or the expenditure path towards it set by budget authorities is inadequate or that the set objective or path significantly deviates from the budgetary authorities have to comply with relevant recommendations of the CoS or ‘publicly justify the decision not to comply with those recommendations’. If adopted, this ‘comply or explain’ obligation will probably be incorporated in the HOF act. However, as we have already noted (above III.A.2.a), it is an unwritten principle of Dutch constitutional law that the legislature cannot bind itself (or its successor). Therefore, the obligation to comply with the recommendations of the CoS or to otherwise justify non-compliance in the Act HOF itself cannot bind the Dutch budget authority, ie, the Dutch legislature. To establish the binding force of the obligation, one would, therefore, have to have recourse to the Directive, as part of the Dutch legal order. It remains to be seen whether this reasoning will convince the Commission. It was after all not entirely convinced by the employment of similar reasoning with respect to the duty in the Fiscal Compact to bind the national budget authority in national law to respect balanced budget rule (above, III.A.2.a). However, it probably will accept it, because it would be hard to expect that the Netherlands amend its Constitution to comply with the Directive.

ii.  European Funds The proposal for a Regulation amending Regulation (EU) No 1303/2013 laying down common provisions on the European Funds102 seems to raise no constitutional objections in the Netherlands. The proposal, received favourably by the Dutch government,103 intends to offer the Member States the possibility of getting financial support from the European Structural and Investment Funds in return for structural reforms in the wake of what are called ‘European Semester priorities’ (among them the Country Specific Recommendations addressed to the

101 Although one may argue that Art 21 of the Wet op de Raad van State ([Act on the CoS], which gives the CoS the competence to advise whenever it deems this necessary, already provided sufficient basis for it. 102 EC, COM (2017)826 Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006. 103 Kamerstukken 22112, nr 2471, 4–5.

The Netherlands  511 Member States in the course of that semester). In order to obtain the financial support, the Member States have to propose to the Commission a detailed set of measures, including milestones, targets and a timetable of no longer than three years, for the implementation of the reforms, which may include product and labour markets reforms, tax reforms, development of capital markets, reforms to improve the business environment as well as investment in human capital and public administration reforms. If the Commission positively assesses the proposal, it takes a decision setting out the reform commitments and the amount of financial support for the relevant Member State. That decision shall stipulate that the support is paid in full once the Member State has fully implemented the reform commitment (proposed Art 23a(5)). How to qualify this arrangement? Does it lead to binding contractual relations? We do not think so. The decision of the Commission is a unilateral one which, strictly legally speaking, only binds the Commission, not the Member State in question. The Commission obliges itself to pay the stipulated amount of support on the condition that the relevant Member State has implemented the promised reforms. If that analysis is correct, the arrangement does not pose any constitutional, and, more precisely democratic, problems in the Netherlands, as the commitments undertaken by the government do not bind a new government, which may refuse to carry out the promised reforms. However, in the alternative interpretation, that the promised structural reforms bind the state in question, this can be problematic democratically. This would be especially the case if the reforms were the subject of the electoral battle and the parties or parties opposing it have won the majority. Even in that case, the arrangement seems to have an in-built escape route for the relevant Member State. The consequence of not implementing the reforms is simply that the Commission does not have to fulfil its part of the contract.

iii.  European Monetary Fund The government of the Netherlands in principle supports the Commission’s proposal104 for a Council regulation on the establishment of the EMF, as the successor of the ESM, and the accompanying Annex with the proposed Statute of the EMF. But it disagrees in many respects with how the Commission has shaped that intention in its proposals. a)  Aid Dispensing The Dutch government wants to stick to the decision-making procedures and the intergovernmental character of the ESM and believes that the development of the ESM into the EMF should not be at the expense of the Member States’ control on the Fund. Under the terms of the ESM Treaty, decisions to grant aid to states in financial distress are made by the Board of Governors (ie, the ministers of finance of the participating states) unanimously, except in the case of an emergency situation, in which case decisions can be taken with a qualified majority (85 per cent of the votes). The Commission wants to turn the exception into a general rule and introduce qualified majority voting for all aid dispensing: the relevant decisions will be taken by the Board of Governors (ministers of finance) with a qualified majority of 85 per cent of the votes cast, subject to approval by the Council of Ministers (also with a qualified majority, but now in accordance with Article 238(3) TFEU).105 This means that the Netherlands, like all participants in the Fund, except France, Germany and Italy, would lose their right of veto.



104 EC, 105 Art

COM (2017)827 Proposal for a Council Regulation on the establishment of the EMF. 5, para 7, of the proposed Statute of the EMF in combination with Art 3 of the proposed Regulation.

512  Jan-Herman Reestman, Monica Claes The Dutch government considers this an undesirable development because it jeopardises the control that the national parliaments of the smaller Member States can exert on the functioning of the Fund through their ministers of finance. Indeed, in the proposed forms of reinforced qualified majority voting in respectively the Board of Governors and the Council, the Information Protocol, which provides for consultation between the Dutch government and the Lower House on aid applications,106 loses all (decision-making in the Board of Governors) or much (decisionmaking in the Council) of its possible impact. Of course, draft decisions can still be discussed between the government and the Lower House, but the emphasis is removed. Although the Lower House can still try to force the minister to oppose draft decisions, ultimately under the shadow of a motion of no-confidence, such a threat is of no avail if there is a majority for it in the Board and Council. Therefore, although the proposed methods of decision-making strictly speaking do not infringe the budgetary prerogatives of the Dutch parliament, it will be clear that it is at odds with it. In this context, it is striking that the Commission’s proposal, does not provide for direct involvement of the European Parliament in the decision-making of the EMF as compensation for the loss of influence of most national parliaments. The proposal does, however, specify that the EMF shall be accountable to a limited extent to the European Parliament for the execution of its tasks. Every year it has to submit a report and a statement to the European Parliament and its Managing Director that may be heard by the competent committees of the parliament. Moreover, the EMF shall reply orally or in writing to questions put to it by the European Parliament.107 The government of the Netherlands believes that such a ‘supervising’ role for the European Parliament is ‘not necessary’ and ‘less obvious’ because the capital for the Fund is provided for by the Member States, and not by the EU.108 b)  Increase of the Authorised Capital Not discussed in the government’s memo is the issue of the increase of the authorised capital of the proposed EMF. As is the case with the ESM, the authorised capital stock of the EMF will be made up of contributions from the individual participating states. Under Dutch constitutional law, a decision to increase the capital stock of the ESM is considered to be an (amendment) treaty in the sense of Article 91(1) of the Constitution. Thus, it requires the consent of both houses of parliament (see also under II.A). According to the proposal of the Commission, the Board of Governors, unanimously and subject to the approval of the Council of Ministers, will decide on an increase of the capital stock of the EMF.109 If this proposal becomes law, the houses of the States-General would, therefore, lose their rights of veto. This may encounter principled resistance in both houses. The Commission’s proposal is on this point also at odds with the States-General’s budgetary power under the Constitution. The main function of budget acts is the authorisation function, according to which government expenditures have to be authorised by parliament in a budget act

106 Brief van de Minister van Financiën aan de Voorzitter van de Tweede Kamer der Staten-Generaal (Letter of the Minister of Finance to the chairman of the Upper House) of 15 December 2014, Kamerstukken (Parliamentary Papers) 21501-07, nr 1217; see further, above II.E.2.b. 107 Art 5 of the proposed Regulation; a similar accountability arrangement is foreseen vis-à-vis the national parliaments. 108 Kamerstukken (Parliamentary Papers) 34856, 3, 7–8. 109 Art 10 of the proposed Statute of the EFM in combination with Art 6 of that Statute and Art 3 of the proposed Regulation.

The Netherlands  513 beforehand. However, budget acts only have an internal effect, ie, in the relationship between the government and the States-General. That entails, among other things that agreements with third parties entered into by the government or individual ministers have to be complied with by the Dutch state, even if a budget act does not cover their financial consequences. Similarly, if the Dutch finance minister on the Board of Governors would agree to increase the authorised capital stock of the EMF, the Netherlands would have to pay their share, even if the States-General has not authorised the expenditure. In that case, the government would have done what it is allowed to do according to EU law, but at the same time violates the Constitution.110 At first sight, the Commission’s proposal seems to lead to a deviation of the Constitution in the sense of Article 91(3) of the Constitution. However, the tension between the proposed competence of the EMF Board of Governors and the States-General’s budgetary power may be easily solved. First, the government may, in practice, decide to only agree to an increase of the subscribed capital after the States-General have agreed to it in an ordinary or supplementary budget law. This is exactly how in practice the tension is solved between, on the one hand, the competence of the Board of Governors of the European Investment Bank (EIB) to increase that Bank’s subscribed capital stock, which is also made up of the Member States’ contributions,111 and on the other, the States-General’s budgetary power. The minister only agrees to an increase of the capital stock of the EIB after the adoption of a budget act, if necessary as a supplementary one.112 Secondly, if in an emergency, the is a shortage of time in which to issue a budget act, the government could have recourse to the so-called ‘budgetary power in a material sense’ (or informal budgetary power), which has emerged in Dutch constitutional practice.113 If the running budget does not cover an intended expenditure and there is no time to adopt a supplementary budget act, or the expenditure is confidential, the government will usually inform the States-General (in practice, the Lower Houses), most times in a letter, of its intention and the budgetary consequences thereof. The Lower House may then (tacitly) agree to the expenditure or reject it. In the latter case, the government has to refrain from entering the financial obligation. If the parliament (tacitly) agrees to the expenditure, it is considered to have exercised its informal budgetary power, and the government may proceed as intended. However, this informal budgetary power cannot replace formal budgetary power. Parliament subsequently still has to formalise its substantive consent by the adoption of a supplementary budget act.

110 In such a situation, all the States-General, and more specifically the Lower House, could do to sanction the violation of the Constitution is to hold the relevant minister, or the government as a whole, accountable and, as a last resort, send him, or it, home, by a motion of no-confidence. 111 See Art 4 of the Statute of the EIB. 112 See the Act of 8 November 2012 amending the budget act of the Ministry of Finance for the year 2012 (Incidental supplementary budget EIB), Staatsblad 2012, 573. In the memorandum of explanation of the bill for the act, the Minister of Finance wrote that ‘(t)he present bill aims to amend the departmental budget of the Ministry of Finance for the year 2012, so that the obligation to enter into a capital injection for the EIB is incorporated in the budget in time. The proposal to the Board of Governors of the EIB requires a decision by 31 December 2012. That is why it was decided to include this change in a separate supplementary budget and thus not to wait for the regular supplementary budget act’; Kamerstukken (Parliamentary Papers) 33409, 2, p 1. 113 There are various definitions of the ‘budgetary power in a material sense’ in circulation, see Poppelaars, ‘Het nationale budgetrecht en Europese integratie’, Ch 5. The definition used here is the one used by the Parliamentary Inquiry Committee on the Financial System (Parlementaire enquetecommissie parlementair stelsel) in its final report of 2012, Kamerstukken (Parliamentary Papers) 31980, 61, 478–79, and by the Raad van State in its opinion on the modernisation of the Government Accounts Act in 2014, Kamerstukken (Parliamentary Papers) 33837, 4, 4.

514  Jan-Herman Reestman, Monica Claes c)  The Legal Basis The Commission proposes to use Article 352 TFEU as a legal basis for the incorporation of the ESM as the EMF into the EU legal order. The Dutch government is not yet convinced that this is legally feasible, as one of the conditions for the provision does not seem to be fulfilled. This concerns the condition that the proposed measure must be necessary in order to achieve an objective laid down in the Treaties, in this case, the safeguarding of financial stability. According to the government, that objective is already achieved with the ESM. It, therefore, queries if a Treaty amendment is not required.114 If the Commission persists in its view that the EMF can be established on the basis of Article 352 TFEU, it will have to convince the Dutch government. If it cannot, one may expect the Dutch government, probably also under pressure from the Dutch parliament, to vote against the proposal, with the result that it cannot be accepted, because Article 352 TFEU requires unanimity in the Council.

iv.  European Automatic Macroeconomic Stabilisation Function As regards the Commission’s Communication on new budgetary instruments for a stable eurozone with the Union framework, the government of the Netherlands is non-committal. For a definitive position, the Dutch government awaits the further explanation and financial substantiation of the proposals by the Commission. However, the government in advance warns ‘it wants to prevent the Netherlands from having to pay for the withdrawal of the UK’.115 Nevertheless, the government is slightly positive about the Commission’s proposal to make financial support available within the EU budget for the Member States implementing structural reforms, if certain conditions are met, and a satisfactory cover can be secured within the upcoming Multiannual Financial Framework. As regards a budgetary convergence facility for the Member States on their way to joining the euro, the government is rather sceptical. It not only requires further substantiation of the Commission’s assertion that the number of applications under the current Structural Reform Support Program, which serves the same purpose, significantly exceeds the available resources but also states that it cannot yet assess the added value of the proposed instrument on the basis of the Communication.116 The government is not in favour of the proposed stabilisation function at European level to provide for the possibility of dealing with asymmetric economic shocks that cannot be managed at the national level alone, as specifically proposed in a draft regulation on the establishment of a European Investment Stabilisation Function.117 In its opinion, the Member States must and can absorb such shocks by using their budgetary buffers and the automatic stabilisers in their budgets. The SGP offers enough room for this.118 For that reason, it also assesses the proportionality of the proposal negatively.119

114 Kamerstukken (Parliamentary Papers) 34856, 3, 9. 115 Kamerstukken (Parliamentary Papers) 22112, 2471, p 4. 116 Kamerstukken (Parliamentary Papers) 22112, 2471, p 6. 117 European Commission, COM(2018)387 Proposal for a regulation on the establishment of a European Investment Stabilisation Function. The government does not discuss at all the very rudimentary Commission proposal of, to establish an European Unemployment Reinsurance Fund or a Rainy Day Fund, in EC, COM (2017)822 Communication on new budgetary instruments for a stable eurozone within the Union framework, 14 and 15, it only mentions them in passing; Kamerstukken (Parliamentary Papers) 22112, 2471, 4, fn 2. 118 Kamerstukken (Parliamentary Papers) 22112, 2471, 6–7; 22112, 2632, 5. 119 Kamerstukken (Parliamentary Papers) 22112, 2632, 6.

The Netherlands  515 To fund the financing of the interest rate subsidy which may accompany the loans that a Member State receives to deal with an asymmetric shock, the Commission proposes to establish a Stabilisation Support Fund funded with a percentage of the so-called seignorage, ie, the income that the national central banks generate by issuing money. The set up of the Fund requires an intergovernmental agreement between the Member States, and, therefore, the approval of both Houses of Parliament (Article 91(3) Constitution). The government is opposed to the proposed method of financing of the Fund120 and the Lower House even adopted a resolution calling upon ‘the government to clearly indicate to the European Commission that a red line is exceeded in a claim on the ECB seignorage income’.121 The prospects for the Fund, therefore, do not seem to be promising. However, the proposal for the establishment of a European Investment Stabilisation Function does not raise other constitutional or legal issues in the Netherlands.

v.  European Minister of Economy and Finance It is hard to find a positive word in the Dutch government’s memo to the Lower House on the Commission’s Communication about a European Minister of Economy and Finance.122 The government is opposed to the merger of the functions of vice-president of the Commission and president of the Eurogroup because an element of ‘checks and balances’ will then be lost. The president of the Eurogroup must often find a compromise between different positions of the governments of the eurozone states. That function can be at odds with the task of a European Commissioner, who, as an independent arbiter, must ensure compliance with the budget rules. The government is also not in favour of combining the vice-presidency of the Commission with the presidency of the Council of Governors of the EMF. If the EMF has to intervene, the Commission has failed in its preventive monitoring of compliance with the SGP and Macro-economic Imbalances Procedure. That is, according to the government, why it is not ‘obvious’ to give a Commissioner a role in the EMF. Since the government is opposed to the establishment of a stabilisation fund, it is also opposed to a role for the European Minister in the management of that fund. A European Minister of Economy and Finance with a discretionary power over a common eurozone treasury to allocate funding for investments or labour market policies would raise no constitutional objections in the Netherlands. However, the competence of such a Minister to veto Member States’ budgets in case of non-compliance with relevant rules or policy recommendations would arguably violate Article 105(1) of the Constitution (see above II B). Finally, the government is of the opinion that a European Minister of Economy and Finance is not necessary to increase the democratic legitimacy of the EU and EMU. Democratic legitimacy can better be enhanced by involving national parliaments more in EMU.123 Also significant is that a motion from the member of the Lower House Leijten, which called on the government ‘to actively oppose, now and in the future, the arrival of a European Minister of Finance’,124 was rejected. However, it should not be inferred from that fact that a majority of the Lower House would be in favour of a European Minister of Economy and Finance. Nevertheless, it would seem that the opposition to the idea would be mainly political, rather than legal or constitutional.

120 Kamerstukken

(Parliamentary Papers), 21501-20, 1349, 9. (Parliamentary Papers) 21501-07, 1510. 122 EC COM (2017) 823 Communication on a European Minister of Economy and Finance. 123 Kamerstukken (Parliamentary Papers) 22112, 2470, 4–5. 124 Kamerstukken (Parliamentary Papers) 21501-20, 1241. 121 Kamerstukken

516  Jan-Herman Reestman, Monica Claes

vi.  Banking Union Insurance Mechanisms – COM(2015) 586 and COM(2017) 827 a)  European Deposit Insurance Scheme The government is in principle positive about the proposal to establish a European Deposit Insurance Scheme (EDIS),125 because such a system is the logical consequence of the establishment of the Banking Union and the SRF. At the same time, the government observes that the conditions for further risk sharing, which such a scheme implies, have not yet been met, despite all progress made in the last years.126 The Lower House is of the same opinion. In December 2015, it adopted a resolution in which it asked the government to reject the Commission’s proposal ‘for now’, because ‘many steps have still be taken in the field of risk reduction’.127 In addition, the Lower House placed a scrutiny reserve (behandelvoorbehoud)128 on the Commission proposal. This reserve ended on 12 February 2016 with the agreement that the House will be informed of every step in the negotiations, and the Minister of Finance will not take ‘decisive standpoints’ in the Council without first consulting the House.129 The Upper House wants to be informed in the same way.130 The government doubts whether Article 114 TFEU (internal market) is the correct legal basis for the Scheme, as is proposed by the Commission. It points out that the Commission proposed the same legal basis for the establishment and funding of the SRF.131 However, the Council finally decided to regulate the funding in an intergovernmental agreement,132 because it considered that the TFEU did not provide a sufficient legal basis for the relevant financial transfers by the Member States.133 b)  EMF as Backstop for the SRF (i)  Political Issues Although the Dutch government is convinced that a financial backstop for the European Banking Union to enhance the capacity of the SRF for executing banking resolutions of the Single Resolution Board (SRB) is necessary, it is not yet convinced that the EMF should function as such. It is also of the opinion that the backstop can only be introduced after sufficient risk mitigation measures have been taken, and not in 2019, as the Commission proposes. The government is also opposed to the Commission proposal to let the executive director decide on the drawdown

125 Formally EC, COM(2015) 586, Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 806/2014 in order to establish a European Deposit Insurance Scheme. 126 Kamerstukken 21 501-07, 1334, p 10–11; 34385, A, see also Kamerstukken (Parliamentary Papers) 34844, nr F, 2.x. 127 Kamerstukken (Parliamentary Papers) 21 501–07, 1333 (Motie Aukje de Vries en Merkies). 128 See below IV.A. 129 Kamerstukken (Parliamentary Papers) 34385, 2. 130 Brief van de voorzitter van de vaste commissie voor financiën van de Eerste Kamer aan de minister van financiën van 9 maart 2016 (Letter from the chairman of the permanent Finance Committee of the Upper House to the Minister of Finance of 9 March 2016), not published (yet) in Kamerstukken (Parliamentary Papers) 34385. 131 EC, COM(2013) 520, Proposal for a Regulation establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Bank Resolution Fund and amending Regulation (EU) No 1093/2010 of the European Parliament and the Council. 132 Agreement on the Transfer and Mutualisation of Contributions to the SRF, recital 7: ‘The obligation to transfer the contributions raised at national level towards the Fund does not derive from the law of the Union.’ 133 Kamerstukken (Parliamentary Papers) 21 501–07, 1334, 8/9.

The Netherlands  517 of credit lines or the provision of guarantees on liabilities of the SRB.134 Such a decision should, in its view, be taken by the Board of Directors (the government probably means: the Board of Governors) with unanimity.135 (ii)  Constitutional Issues The proposal to let the EMF, through credit lines or guarantees, function as a common backstop to the Single Resolution Board/Fund if the latter Fund’s resources prove to be insufficient, and as such do not create specific constitutional issues in the Netherlands. The amount available for the backstop is initially limited to 60,000 million euro and comes from the funds of the EMF. The ceiling of 60,000 million may be raised by the Board of Governors, with unanimity, and is then subject to the approval of the Council, with a qualified majority.136 The requirement of unanimity in the Board entails that the Dutch Minister of Finance can be held fully responsible for his behaviour on that Board. Furthermore, although the Information Protocol formally does not extend to decisions to increase the ceiling, it is easily conceivable that also here the rule will apply that the minister consults the Lower House before he decides to consent to the relevant draft. It may be added that as long as the increase does not lead to a raising of the subscribed capital of the EMF, the proposal is not at odds with the budget authority of the Dutch parliament as in Article 105(1) of the Constitution. If this increase would require a raising of the subscribed capital, the observations made above, in III.E.3.b are applicable. The Dutch government’s opposition to the proposal to let the Managing Director decide on the drawdown of credit lines to the SRB, however, also seems to have a constitutional significance.137 This Managing Director is appointed by the Council for five years and can only be dismissed by the ECJ, if he or she ‘no longer fulfils the conditions required for the performance of his or her duties, or in case of serious misconduct’.138 Although the financial terms and conditions for the support to the SRB will be established by the Board of Governors with unanimity,139 the Managing Director will most probably have some political leeway in deciding whether or not to provide support. At present, the Dutch government wants the Board of Directors to decide to provide support, instead of the Managing Director. In contrast to the Managing Director, the members of this Board are not independent, or at least they do not have the same level of protection of their function as the Managing Director. Each governor, ie, each minister of finance, appoints a Director and this appointment is revocable at any time. This seems to indicate that Directors may be subjected to political instructions by the relevant minister. Therefore, if the Board of Directors were to decide on support, the ministers would effectively control the decision to support the SRB, which in turn would give the national parliaments the possibility to influence the ministers. However, support decisions usually have to be made very fast – according to the Commission’s proposal, even within 12 hours after the receipt of a support request of the SRB140 – and it is highly unlikely that the parliaments can be consulted in such a short time frame. Nevertheless, the ministers would, thus, control the support dispensing decision-making and can be held fully accountable for their voting behaviour by the national parliaments. 134 Art 23 of the proposed Statute of the EMF. 135 Kamerstukken (Parliamentary Papers) 34856, 3, 6 and 8. 136 Respectively Art 22, para 6, sub f and g, of the proposed Statute of the EFM, and Art 3, para 1, of the proposed Regulation. 137 Art 23, para 2, sub b, proposed Statute. 138 Art 7, paras 1 and 2, proposed Statute. 139 Art 22, para 4, sub a, in conjunction with Art 5, para 6, sub f and g, of the proposed Statute. 140 Art 22, para 7, of the proposed Statute.

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IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law A.  Country-Specific Modes of Participation of the National Parliament and Governments in EMU Decision-Making In the period between the entry into force of the Maastricht Treaty and the entry into force of the Lisbon Treaty, both houses of parliament had to approve drafts of binding decisions under the so-called Third Pillar (Justice and Home Affairs) of the EU before the government representative in the Council of Ministers was allowed to agree to them.141 The rationale of this parliamentary right of consent was to compensate for the absence of co-legislative competences of the European Parliament as regards the relevant subject matters. Proportional to the extension of the European Parliament’s legislative powers by the Treaty of Lisbon, the consent powers of the Dutch parliament have diminished. Under that Treaty, the Dutch parliament’s right of consent is limited to decisions under the Articles 77(3), 87(3), and 89 TFEU. Under these provisions, a special legislative procedure applies, which gives the European Parliament merely consultative powers. The consent requirement is also applicable to decisions under Article 81(3)(1) TFEU, as long as the ordinary legislative procedure is not made applicable there. The relevant draft decisions have to be approved by both houses of parliament before the Dutch representative in the Council may consent to it. Tacit approval is given unless within 15 days of the submission of the draft to the States-General one of the houses expresses the wish that the draft requires explicit approval.142 On the occasion of the parliamentary approval of the Lisbon Treaty, the States-General, by way of amendment of the Lower House, also obtained a so-called scrutiny reserve (behandelvoorbehoud) relating to proposals for legislative acts referred to in Article 2 of the Protocol on the role of national parliaments in the EU (except those submitted to parliamentary consent). Each House may, within two months of receiving it, decide that it considers a proposal to be of such political importance that it wishes to be informed about it in a particular manner. In that case, the government makes a parliamentary reservation in the Council and within four weeks enters into an agreement with the House(s) about how it informs the House(s) about the course of the negotiations, the legislative procedure and any follow-up consultation. As a rule, the parliamentary reservation lapses after this agreement is reached, although according to the Upper House, it may last longer if it deems this necessary for an adequate treatment of the proposal.143 As will be clear, the Dutch parliamentary scrutiny reserve should be distinguished from the British parliamentary scrutiny reserve, which in general requires that a government representative does not vote in favour of a draft in the Council until the houses have finished their scrutiny of the proposal. The Dutch reserve is, in principle, limited in time, to four weeks.144 In another

141 Art 3 of the Rijkswet of 17 December 1992 (approval Treaty of Maastricht), Staatsblad 1992, 692. At the occasion of the approval of the Treaty of Amsterdam, the right of consent was also declared applicable to decisions about subjects which were transferred by that Treaty to the EC-Treaty as long as the EP was not co-legislature; Art 4 of Rijkswet of 24 December 1998, Staatsblad 1998 (approval Treaty of Amsterdam), 737. 142 Art 3 of the Rijkswet of 10 Juli 2008 (approval Treaty of Lisbon), Staatsblad 2008, 301. 143 Brecht van Mourik, Parlementaire controle op Europese besluitvoming (Nijmegen, Wolf Legal Publishers, 2012) 58. 144 Interestingly, the Raad van State has tentatively suggested in an opinion on national democratic control on powers transferred to the EU to convert the Dutch version of the scrutiny reserve into the British version; Kamerstukken (Parliamentary Papers) 33848, nr 15, 13–14.

The Netherlands  519 sense, however, it does resemble the British scrutiny reserve in that both arrangements concern not-legally binding, political agreements that are not enforceable in the courts. The only sanctions possible are of a political nature: holding the minister accountable and, as ultimum remedium, the adoption of a motion of no confidence. The scrutiny reserve is regularly invoked by the Lower House,145 and among the proposals concerned include, as we have seen, the Commission proposals for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States (COM(2017) 824), for establishing EDIS (EDIS; COM(2017) 827) and for the EMF (COM(2017) 827).146 The House formally ended the latter scrutiny reserved on the basis of the following agreement: 1. The minister sends the House a summary comparing the EMF proposal of the EC with the existing possibilities under the ESM, and the position of the cabinet. The economic advantages and disadvantages of the various options will also be discussed. 2. The minister will inform the House prior to the EMU debate whether the Netherlands will ask the Legal Service of the Council for advice on the legal basis of the EMF proposal. 3. The House receives an annual overview of stress tests carried out at financial institutions in the eurozone. 4. If so desired, the minister will inform the Chamber confidentially about the position of other Member States in the negotiation of these proposals. 5. The minister will inform the House in a timely manner if the Netherlands chooses a position during the negotiations on these proposals that deviate from the positions previously shared with the House, in particular the specific objections of the government against the EMF proposal.147

B.  Country-Specific Techniques of Implementing Secondary Legislation, Especially of Directives: Laws, Administrative Regulations, Others The (unwritten) constitutional rule in the Netherlands is that the implementation of EU law requires at least a basis in the act of parliament. In practice, however, a large majority of EU Directives is implemented by way of delegated legislation (orders in Council, ministerial orders, etc).148 In some cases, the implementation by an act of parliament is required, for instance if the subject matter of the Directive is reserved for the legislature by the Constitution or leaves room for important policy choices. EU law in the field of the EMU has been implemented by acts of parliament, more particularly, the Government Accounts Act and the HOF Act (see under III.A.1). 145 For instance, 16 times by the Lower House in 2017. 146 Kamerstukken (Parliamentary Papers) 34 856, nr 1 (beëindigen behandel voorbehoud inzake EU-voorstellen inzake de Economische en Monetaire Unie COM (2017) 824 en 827). 147 Kamerstukken (Parliamentary Papers) 34 856, 4, p 1. 148 Bernard Steunenberg, Wim Voermans, De omzetting van Europese richtlijnen: Instrumenten, technieken en processen in zes lidstaten vergeleken, (Leiden: Universiteit Leiden, 2005) 31. The Crown issuing Orders in Council is the first to qualify for delegation; delegation to a minister is only considered to be acceptable if it concerns the implementation of EU law that leaves the Dutch legislature no policy choices, except on subordinate points; Art 26(2) of the government instructions for drafting legislation (‘aanwijzingen voor de wetgevingstechniek’). Henri VIII clauses, ie, provisions in acts of parliament which empower delegated legislation to amend acts of parliament, were incidentally used in the past, but were very contested and are now considered anathema in Dutch constitutional law, see Art 34 of the Government instructions for drafting legislation (‘aanwijzingen voor de wetgevingstechniek’); Kamerstukken (Parliamentary Papers), 29 200 VI, F, tweede herdruk.

520  Jan-Herman Reestman, Monica Claes

C.  Enforcement Through the Courts Doctrinally, the direct effect and primacy of EU law and the European mandate of Dutch courts pose no real problems. Dutch judges are well aware that domestic law must be in accordance with directly effective EU law, and they may set aside conflicting legislation or even the Constitution. Similarly, Dutch courts are among the leading group of national courts sending preliminary questions to the ECJ, even if recently the flow of requests has somewhat diminished.149 Moreover, the enactment and enforcement of a regulation contrary to higher regulations constitute a tort under Dutch Law.150 Since the state has the duty under Article 4(3) TEU and Article 288, third sentence, TFEU to correctly implement European directives, failure to do so is considered a tort.151 Nevertheless, in practice, courts tend to prefer to take recourse to less invasive tools and techniques, such as conform interpretation.152 Moreover, the separation of powers between the various state organs in the Netherlands is such that the question of whether, when and how an act of parliament will be enacted must be answered by the political institutions involved, ie, the government and the States-General, and not by the courts. Accordingly, the courts cannot order the legislature to adopt a specific act of parliament or correctly implement a given Directive. This is the same if the result to be achieved by the legislature and the period within which the result must be achieved are fixed on the basis of an EU Directive and the legislature has failed to adopt the required legislation within the implementation period of a Directive.153

V.  Resulting Relationship between EMU Related Law and National Law The absolute and unconditional primacy of EU law goes practically unchallenged in the Netherlands. The same applies to EMU law. There is practically no theory of ultra vires or constitutional identity review. There is no control of EMU related measures by means of referenda. Dutch courts do not consider themselves competent to review secondary EU law and are, furthermore, very active in the context of preliminary reference procedures. Overall, the Constitution and constitutional law do not create problems in the implementation and application of EU and EMU law. Similarly, they do not impose serious obstacles to participation in further integration. Any further steps in EU and EMU integration will be a matter of political debate, rather than legal or constitutional feasibility.

References L Besselink et al, De Nederlandse Grondwet en de Europese Unie (Groningen, Europa Law Publishing, 2002). L Besselink et al, De constitutionele bepalingen over verdragen die van de Grondwet afwijken en de opdracht van bevoegdheid aan internationale organisaties, Kamerstukken I, 2002/03, 27 484 (R 1669), nr 298. P P Bovend’Eert and H Kummeling, Het Nederlandse parlement (Alphen aan den Rijn, Wolters Kluwer, 2017).

149 Jaarverslag

van de Nederlandse procesvertegenwoordiging bij het Hof van Justitie van de EU, 8. 9 May 1986, ECLI:NL:HR:1986:AC0867, NJ 1987/252 (Staat/Van Gelder). 151 HR 18 September2015, ECLI:NL:HR:2015:2722 (De Staat/Habing); HR, 4 May 2018, ECLI:NL:HR:2018:677. 152 See the in-depth study of Joke De Wit, Artikel 94 Grondwet toegepast (Den Haag, Boom, 2012). 153 HR 21 March 2003, ECLI:NL:HR:2003:AE8462 (Waterpakt). 150 HR

The Netherlands  521 J De Wit, Artikel 94 Grondwet toegepast (Den Haag, Boom, 2012). M Diamant and M van Emmerik., ‘Het Nederlandse budgetrecht in Europees perspectief ’ (2013) TvCR, 94–129. M Diamant, Het budgetrecht van het Nederlandse parlement in het licht van Europees economisch bestuur (Leiden, Wolters Kluwer, 2017). M Duchateau, ‘Doorwerking van Europees recht en de plaats van de Nederlandse Grondwet’ in S Hardt, AW Heringa and A Waltermann (eds), Bevrijdende en begrenzende soevereiniteit (Den Haag, Bju, 2018) 125–45. European Commission, COM(2012) 342, Communication on Common principles on national fiscal correction mechanisms. European Commission, COM(2012) 777/2, A blueprint for a deep and genuine economic and monetary union – Launching a European Debate. European Commission, COM(2013) 520, Proposal for a Regulation establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Bank Resolution Fund and amending Regulation (EU) No 1093/2010 of the European Parliament and of the Council. European Commission, COM(2015) 586, Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 806/2014 in order to establish a European Deposit Insurance Scheme. European Commission, Country annex no 17 (on the Netherlands) to the Report from the Commission presented under Art 8 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, C(2017) 1201. European Commission, COM(2017)822 Communication on new budgetary instruments for a stable euro area within the Union framework. European Commission, COM (2017) 823 Communication on a European Minister of Economy and Finance. European Commission, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States. European Commission, COM (2017)826 Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006. European Commission, COM (2017)827 Proposal for a Council Regulation on the establishment of the European Monetary Fund. European Commission, COM(2018)387 Proposal for a regulation on the establishment of a European Investment Stabilisation Function. F Hendriks and L Schaap, ‘The Netherlands: Subnational democracy and the reinvention of tradition’ in J Loughlin, F Hendriks and A Lidstrom (eds), The Oxford Handbook of local and regional democracy in Europe (Oxford, Oxford University Press, 2011). K Jacobs (ed), ‘Special issue: Referendums in times of discontent’ (2018) 5 Acta Politica. S Poppelaars, Het nationale budgetrecht en Europese integratie (Alphen aan den Rijn, Wolters Kluwer, 2018). S Poppelaars, ‘Een Europees Monetair Fonds en de positie van het Nederlandse parlement’ (2018) TvCR, 342–55. Jan-Herman Reestman, ‘Constitutioneel minimalisme. Het Stabiliteitsverdrag in de Nederlandse rechtsorde’ (2013) TvCR, 6–27. Jan-Herman Reestman, ‘The Fiscal Compact: Europe’s Not Always Able to Speak German’(2013) 9 EuConst, 480–500. A Schout, ‘The Netherlands as constructive EU partner searching for an EU narrative’, in J Erikson (ed), The Future of the Economic and Monetary Union. Reform perspectives in France, Germany, Italy and the Netherlands, SIEPS (2018), 60. B Steunenberg and W Voermans, De omzetting van Europese richtlijnen:Instrumenten, technieken en processen in zes lidstaten vergeleken, (Leiden: Universiteit Leiden, 2005). M Sremler, ‘De voorgestelde algemene bepaling als fundamentele constitutionele norm’ (2018) TvCR, 204–20.

522  Jan-Herman Reestman, Monica Claes W van der Woude, ‘Houdbare overheidsfinanciën en gemeentelijke autonomie. Hoe Europese begrotingsnormen interbestuurlijke verhoudingen raken’ (2013) Ars Aequi, 916. B van Mourik, Parlementaire controle op Europese besluitvoming (Nijmegen, Wolf Legal Publishers, 2012). J W Van Rossem, ‘Pleidooi voor een materiele soevereiniteitsopvatting’ (2013) TvCR, 49–54. L Verhey, De constitutionele conventie: een blinde vlek in ons staatsrecht (Alphen aan den Rijn, Kluwer, 2014). H Vollaard, J van der Harst and G Voerman, Van aanvallen! naar verdedigen? De opstelling van Nederland ten aanzien van Europese integratie, 1945–2015 (Den Haag, Boom, 2015). H G H Warmelink, ‘Over afwijken en afwijkingen van de Grondwet’ (2013) TvCR, 44–48. R Wessels, ‘The EU Solution to Deal with the Dutch Referendum Result on the EU-Ukraine Association Agreement’ (2016) European Papers.

21 Austria RAINER PALMSTORFER

Abstract: This chapter deals with the foundations of Austria’s participation in the EMU framework under the Austrian Federal Constitution. It analyses the transposition of the EMU reform measures adopted in the wake of the euro crisis (from 2010 onwards) into Austrian law and potential constitutional obstacles to further steps of EMU integration. Key words: EMU reform, Austrian Constitution, basic constitutional principles, democracy, Austrian Stability Pact, Austrian Fiscal Council, TSCG, TESM, Six Pack, Two Pack, Saint-Nicolas package.

I.  Main Characteristics of the National Constitutional System, and Constitutional Culture The Austrian constitutional system1 is based mainly on the Federal Constitutional Law 19202 (Bundes-Verfassungsgesetz, commonly abbreviated and hereafter referred to as B-VG).3 The Federal Constitutional Law 1920 is the most important part of the body of the Austrian Federal Constitution (hereafter: Federal Constitution), for, unlike Germany, the Federal Constitution is not confined to a single document, but can also be found in a number of constitutional laws and even embedded as constitutional provisions in simple federal laws.4 Apart from the B-VG, there are some further 50 federal constitutional laws and some 500 constitutional provisions embedded in simple federal laws.5 The term ‘federal’ already points to a core element of the Austrian constitutional system, which will also be of major importance for the following analysis. Pursuant to Article 2 paragraph 1 B-VG, ‘Austria is a federal state’, composed of ‘the autonomous Länder of Burgenland, Carinthia, Lower Austria, Upper Austria, Salzburg, Styria, Tirol, Vorarlberg and 1 For a recent description of this system in English see, eg, Stelzer Manfred, An Introduction to Austrian Constitutional Law, 3rd edn (Vienna, Lexis Nexis, 2014). 2 Since its enactment in 1920, the B-VG has been amended many times. More importantly, for a considerable time (1934–45) it was not in force. 3 For a recent English version of the B-VG please consult www.ris.bka.gv.at/Dokument.wxe?Abfrage=Erv&Doku mentnummer=ERV_1930_1. This study follows this translation. Sometimes, however, the author has used his own terminology. 4 Cf Art 44 para 1 B-VG. 5 Griller Stefan, Grundlagen und Methoden des Verfassungs- und Verwaltungsrechts, 4th edn (Vienna, Verlag Österreich, 2015) 53.

524  Rainer Palmstorfer Vienna’ (Article 2 paragraph 2 B-VG). For the sake of clarity, we may refer to Land and Länder as state and, respectively, states.6 Therefore, we may speak of the federation (Bund) as distinct from the nine states that compose it. Given that Austria is a federal state, there are 10 parliaments (one national and nine state parliaments). The national parliament is bicameral, consisting of the National Council (Nationalrat) and the Federal Council (Bundesrat), which jointly exercise the legislative power of the federation (Article 24 B-VG) and act as federal legislator. The state parliaments are competent for the legislation of the respective states. This duality can also be seen in the body of law, for there is federal law and nine state laws. More importantly, there is no primacy of simple federal law over state law. By contrast, the Federal Constitution separates the field of competences between the federation and the states. Pursuant to Articles 10–15 B-VG, the competences for legislation and execution are divided between the federation and the states. Technically, the B-VG assigns the competence to legislate on and/or execute specific matters either to the federation or the states. Nevertheless, the autonomy of the states is a relative one. This means that both the constitutional and the simple laws adopted by a state may not infringe the Federal Constitution (cf Article 99 paragraph 1 B-VG). Therefore, there is a hierarchy as regards the relationship between the Federal Constitution and state laws. The states, nevertheless, enjoy a comparatively big margin as regards their respective budgetary laws, for the latter field is barely predetermined by the Federal Constitution. However, this does not hold true for taxation, in which the federal legislator decides on competences and is, thus, granted considerable powers.7 Talking of budgets, it needs to be stressed that the nine states also have their own budgets. Unsurprisingly, the forms of and the ways in which state budgets are adopted differ. Hitherto, the majority of state budgets take the form of a simple resolution of the state parliaments, which means that, formally, state budgets are not state laws.8 Amendments of the Federal Constitution require ‘the consent of the Federal Council which must be imparted in the presence of at least half the members and by a majority of two thirds of the votes cast.’9 Additionally, ‘any total revision of the Federal Constitution shall … be submitted to a referendum by the entire nation, whereas any partial revision requires this only if one third of the members of the National Council or the Federal Council so demands.’10 Article 44 paragraph 3 B-VG implies that the Austrian legal order contains a layer of constitutional law that ranks higher than what we may refer to as simple constitutional law. But what does this layer consist of? Given the importance of Article 44 paragraph 3 B-VG in the Austrian legal order, it is unsurprising that there is some controversy on the question of what legal changes result in a total revision.11 This is due to the fact that the B-VG is silent on this notion, leaving lawyers a lot of room for interpretation. However, there is consensus on the existence of the so-called basic constitutional principles (Grundprinzipien), which make up the highest level of Austrian constitutional law. Their existence can be backed up by settled case law of the Constitutional Court (Verfassungsgerichtshof).12 Although there is consensus on the existence of such principles, the

6 Alternatively, one may also use the term ‘province(s)’ instead of ‘state(s)’. 7 Cf Stelzer, An Introduction to Austrian Constitutional Law (n 1), 47: ‘The Federal legislator has to assign each tax (eg, income tax) to a specific type and thus decides who is responsible for legislation and execution.’ 8 Frank Leo, ‘Haushaltsrecht’ in E Pürgy (ed), Das Recht der Länder II/2 (Wien, Sramek Verlag, 2012) 696. 9 Art 44 para 2 B-VG. 10 Art 44 para 3 B-VG. 11 See Andreas Janko, Gesamtänderung der Bundesverfassung (Wien, Verlag Österreich, 2004) 164ff. For a different view: Ewald Wiederin, ‘Gesamtänderung, Totalrevision und Verfassungsänderung’, in M Akyürek et al (eds) Staat und Recht in europäischer Perspektive. Festschrift Heinz Schäffer (München, Beck, 2006) 972. 12 Recently: Constitutional Court, 10.10.2018, G 144/2018 = ECLI:AT:VFGH:2018:G144.2018.

Austria  525 question of what (precisely) these principles consist of is not clear. This is because these principles are not defined in the Federal Constitution.13 They have to be deduced from it by means of interpretation. Nevertheless, it is accepted that the Federal Constitution contains the following basic principles: (i) democracy, (ii) republicanism, (iii) federalism, (vi) rule of law, (v) fundamental rights and (vi) separation of powers.14 This being said, it remains debatable when we can talk of, for example, an amendment of the democratic principle and, thus, of a total revision under Article 44 paragraph 3 B-VG. In the Austrian legal system, the Constitutional Court is the ultimate guardian of the legality of the acts set by the federation, the states or communities. The Constitutional Court resorts to traditional methods of judicial interpretation – grammatical, systematic, teleological and historical – the latter being of particular importance for the interpretation of the division of competences between the federation and the states. In a nutshell, the task of the Constitutional Court is to make sure that lower-ranking Austrian law (eg administrative acts, state laws, simple federal laws) complies with higher-ranking Austrian law, in particular the Federal Constitution. Furthermore, the Constitutional Court also measures simple constitutional law by the yardstick of the basic constitutional principles. Consequently, federal constitutional law can violate the Federal Constitution or, more precisely, those parts belonging to the basic constitutional principles. Talking of the Constitutional Court’s legal standard of review (ie scope of judicial review) and objects of review, EU law – as a rule – does not qualify as either.15 In other words, the Constitutional Court cannot examine whether, for example, (EU) Regulation No 1173/2011 is compatible with the Federal Constitution. By the same token, it cannot examine whether, say, the Federal Finance Law 2019 (the budget law) violates Article 126 of the Treaty on the Functioning of the European Union (TFEU). Apart from the Constitutional Court, the Austrian judiciary also features a Supreme Court and a Highest Administrative Court. However, as these two courts are of no importance for EMU affairs, they will not be dealt with in this chapter. The Federal Constitution was designed to be a constitution that predominantly governs the rules of the game, that is, it merely governs the organisation of public powers. For example, the Federal Constitution – though prescribing the federal legislative process (Articles 41–49b B-VG) – does not prescribe the contents of this process. Originally, it hardly mirrored any political programme and did not contain constitutional values, confessions and objectives. Consequently, it leaves a lot of (political) room for the federal legislator. Only in recent decades did some programmatic provisions find their way into the Federal Constitution, one of them being of some importance for our analysis. This provision is Article 13 paragraph 2 B-VG.16 Amended in 2008,17 and, therefore, prior to the EMU reform triggered by the euro crisis, this provision constitutionalises the constitutional objective of overall balance and sustainable balanced budgets for the federation, the states and the communities.

13 In fact, the Federal Constitutional Law 1920 does not use the terminology of basic constitutional principles. It only refers to a ‘total revision of the Federal Constitution’ (Art 44 para 2 B-VG). 14 Griller, Grundlagen und Methoden des Verfassungs- und Verwaltungsrechts (n 4) 81; see, however, Berka Walter, Verfassungsrecht, 7th edn (Wien, Verlag Österreich, 2018) para 114 lists only four basic principles (democracy, republicanism, federalism and rule of law). 15 See Berka, Verfassungsrecht (n 13) paras 367ff. 16 Art 13 para 2 B-VG reads as follows: ‘The Federation, the provinces and the municipalities must aim at the securement of an overall balance and sustainable balanced budgets in the conduct of their budgeting. They have to coordinate their budgeting with regard to these goals.’ 17 Federal Law Gazette I No 1/2008.

526  Rainer Palmstorfer Although this provision is part of the Federal Constitution, it only imposes minor limits on the mentioned territorial corporate bodies or, better, on the respective institutions in charge of the budgeting of these bodies. First, the provision is drafted in a rather vague way. One could reasonably ask, what are sustainable balanced budgets? Second, the provision is meant to impose an objective to be reached. However, it does not prescribe when this objective has to be reached. Third, economic and fiscal policy (here understood as the use of government spending and taxation)18 necessarily require and involve political decisions. On top of that, these political decisions involve prediction of future developments. All of these reasons restrict the possibility of judicial control in these fields. In brief, this provision is hardly justiciable.19 More generally speaking, the Constitution contains few clear-cut provisions on the macroeconomic structure. As a consequence, the Constitution offers little guidance for economic issues apart from the protection of individual interests by fundamental rights (eg right to property, freedom of establishment and employment) or the division of competences between the federation and the states.

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments The Republic of Austria joined the EU on 1 January 1995. As Austria’s accession was considered to be a total revision of the Federal Constitution under Article 44 paragraph 3 B-VG, this step necessitated a ‘referendum by the entire nation’. This referendum was held on 12 June 1994, with 66.6 per cent of the votes in favour of accession, the turnout being 82.3 per cent. Technically speaking, the subject of the referendum was whether or not the enactment of the National Council of 5 June 1994 on the Federal Constitutional Law on the Accession of Austria to the European Union (hereafter: Accession Law)20 should have the force of law. This already shows a kind of sophisticated legal construction, for the nation did not directly vote on the accession itself, but on the said Federal Constitutional Law. According to Article I of this Law, the authorities competent pursuant to the Federal Constitution shall be authorized to enter into the Treaty regarding the accession of Austria to the European Union in accordance with the result of the negotiations as set forth by the accession conference on 12 April 1994.

Pursuant to Article II, the Treaty on the Accession of Austria to the European Union shall only be entered into upon ratification by the National Council and the approval of the Federal Council. Each of the resolutions requires the presence of at least half of the members and a majority of two thirds of the votes cast.

The issue of EMU membership was not given separate treatment during the legal preparations for Austria’s EU accession. In other words, it was quite obvious that the accession qualified as a total revision under Article 44 paragraph 3 B-VG, but the legislative process did not specify which parts of the EU legal order or policy fields were tantamount to such a total revision. In short, sophisticated differentiations as regards EU law were not made. Within this body of EU law that 18 Kaarlo Tuori, Klaus Tuori, The Eurozone Crisis: A Constitutional Analysis (Cambridge, Cambridge University Press, 2014) 31: ‘Fiscal policy focuses particularly on revenues and expenditures of a state which are typically defined in national budget and approved by parliaments.’ 19 Tellingly, the Constitutional Court has not used this provision as the yardstick of judicial control yet. This is due to the programmatic nature of Art 13 para 2 B-VG. 20 Federal Law Gazette No 744/1994.

Austria  527 was agreed upon in the then referendum, one could also find the Maastricht Treaty provisions on the EMU. Against this background, one has to mention one of the many occasions of popular initiatives in Austria. Unlike a referendum, a popular initiative is not the last but the first step of the legislative process. It is a bill introduced by the voters, provided that it is supported by ‘100,000 voters or by one sixth each of the voters in three states’ and, being a stage of federal legislation, the initiative ‘must concern a matter to be settled by federal law and can be put forward in the form of a draft law’. If successful, such a bill must only be dealt with in the National Council. The National Council, however, is not bound by it. In 1997, there was a popular initiative demanding the legislator to hold a referendum on the introduction of the single currency in Austria. This bill was not passed by the National Council. More importantly, it was quite clear that from the perspective of EU law, such a referendum would have been irrelevant anyway:21 unlike the United Kingdom and Denmark, Austria has not opted out of the single currency. Thus, Austria was bound by EU law to participate in the single currency. This participation required the adoption and, respectively, amendment of several federal laws including among others the federal law on the Österreichische Nationalbank22 and the so-called ‘Euro Law’, a simple federal law that acknowledged the euro as legal tender in Austria.23 Prior to the third stage of EMU (1 January 1999), it was also necessary to find a way to avoid excessive government deficits (now: Article 126 paragraph 1 TFEU), an obligation that refers to the general government and comprises central government, regional or local government and social security funds, to the exclusion of commercial operations (Article 2 first indent EDP Protocol). The problem was that under the Federal Constitution the competences for public expenditure and revenues are divided between the federation, the states but also the communities. In brief, there is no single competence for regulating the government sector. Instead, there is a bundle of competences of actors forming the government sector. The approach chosen by the constitutional legislator was to coordinate the legal entities belonging to this sector. This was done by a special federal constitutional law: the so-called ‘Empowerment Law’ (Ermächtigung des Österreichischen Gemeindebundes und des Österreichischen Städtebundes).24 The Empowerment Law provides for the possibility of legally binding agreements between the federation, the states and the communities. Non-compliance with such agreements could (this has never happened so far) be controlled in a special procedure before the Constitutional Court, which can be called upon by the contracting parties.25 The Empowerment Law provided for the conclusion of two types of agreement: (a) the consultation mechanism and (b) the Austrian Stability Pact.26 As its name implies, the consultation mechanism is basically about information exchange concerning legislative measures of one territorial corporate body (eg the federation) possibly producing costs for other territorial corporate bodies (eg the states). The Austrian Stability Pact is more interesting for the sake of our study. The Austrian Stability Pact contains the obligations of the territorial corporate bodies to meet the criteria of budgetary 21 See Griller, Stefan, ‘Blockademöglichkeiten gegen die Einführung des Euro?‘ (1997) 221 Journal für Rechtspolitik 231ff. 22 Federal Law Gazette I No 60/1998. 23 Federal Law Gazette I No 72/2000. 24 Federal Law Gazette I No 61/1998. 25 The key provision is Art 138a para 1 B-VG, according to which the Constitutional Court can be requested to establish whether such an agreement exists and whether the obligations arising from such an agreement, save in so far as it is a matter of pecuniary claims, have been fulfilled. For pecuniary claims, Art 137 B-VG is applicable. 26 The terminology is reminiscent of the Stability and Growth Pact at the EU level.

528  Rainer Palmstorfer discipline imposed by EU law on Austria’s public sector (ie federation, states, communities). Thus, the Austrian Stability Act is the main tool to safeguard compliance with Article 126 TFEU and the Stability and Growth Pact (SGP). Since then, a number of Austrian Stability Acts have been concluded, with the Austrian Stability Act 2012 being the most recent one.27 The following EU Treaty amendments (eg Lisbon) were not considered to be (further) total revisions of the Federal Constitution. Thus, there were no further mandatory referenda. The B-VG deals with further amendments of the EU Treaties in Article 50 paragraph 1 subparagraph 2 B-VG, which states that ‘the conclusion of Treaties by which the contractual bases of the European Union are modified, require the approval of the National Council’. Moreover, Article 50 paragraph 4 B-VG says that notwithstanding Art 44 para 3 treaties according to para 1 subpara 2 may only be concluded with the approval of the National Council and the approval of the Federal Council. These resolutions each require the presence of at least half of its members and the majority of two thirds of the votes cast.

In brief, EU Treaty amendments require a constitutional majority in both chambers of the Federal Parliament. It was claimed that the Lisbon Treaty was tantamount to a total revision. However, the applications brought to the Austrian Constitutional Court were dismissed because the applicants lacked standing.28 Also the prevailing view in legal doctrine holds that none of the Treaty amendments since Austria’s accession was tantamount to another total revision of the Federal Constitution.29 From the perspective of the Federal Constitution, one has to make a difference between EU law and non-EU law: in Article 50 paragraph 1 B-VG, the Federal Constitution differentiates between state treaties (Staatsverträge) modifying the Treaty basis of the EU (Article 50 paragraph 1 subparagraph 1 B-VG) and other state treaties (Article 50 paragraph 1 subparagraph 2 B-VG).30 This distinction has considerable legal effects, for the latter treaties – being treaties under public international law that are distinct from EU Treaties – cannot amend the Federal Constitution, whereas EU Treaties can. Thus, before the approval of a treaty under Article 50 paragraph 1 subparagraph 2 B-VG, the Federal Legislator needs to amend the Federal Constitution if the said treaty conflicts with it. Both the Treaty Establishing the European Stability Mechanism (TESM) and the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG) were approved by the National Council by a simple majority (Article 50 paragraph 2 B-VG), which implies that they were not considered to amend the Federal Constitution. In both cases, this was contested before the Constitutional Court, the claim being that these instruments were an infringement of the Federal Constitution.31 In the wake of the EMU reform that was triggered by the euro crisis, the Federal Constitution was amended only as regards the introduction of information/participation rights of the National Council in ESM affairs. This was done by the adoption of Articles 50a–d B-VG. However, it seems that the Federal Constitutional Legislator did not do this because such rights were regarded as a necessary requirement for the compatibility of the TESM with the Federal Constitution. Rather, the introduction of Articles 50a–d B-VG was the political price to be paid for the parliamentary approval of Article 136 paragraph 3 TFEU. This is because the approval of this TFEU Article 27 Federal Law Gazette I No 30/2013; see at section IV. 28 VfSlg 19.085/2010 = ECLI:AT:VFGH:2010:SV1.2010. 29 See Theo Öhlinger, Michael Potacs, EU-Recht und staatliches Recht: Die Anwendung des Europarechts im innerstaatlichen Bereich, 6th edn (Wien, Lexis Nexis, 2017) 59. 30 Art 50 para 1 subpara 2 B-VG refers to ‘political-state treaties and state treaties the contents of which modify or complement existent laws’. 31 See at section III.

Austria  529 introduced by a simplified Treaty amendment procedure required a constitutional majority in both the National Council and the Federal Council (ie the presence of at least half the members and a majority of two-thirds of the votes cast).32 The then governing parties lacking this constitutional majority needed support from the opposition. As the political price for this support, the governing parties consented to the introduction of rights of the National Council with regard to the ESM comparable to those of the German Bundestag.33 Articles 50a–d B-VG confer information rights on the National Council and, more importantly, they make some decisions of the Austrian representatives in the ESM institutions (in particular the finance minister) dependent on the authorisation of the National Council. These articles are somehow modelled on Article 23e B-VG, which deals with parliamentary control of the Austrian representative (ie the minister) in EU bodies (ie the Council). As these Articles are the main constitutional novelty brought about by the euro crisis, they will be quoted in their entirety: Art 50a B-VG: The National Council participates in matters of the European stability mechanism. Art 50b B-VG: An Austrian representative in the European stability mechanism may only agree or abstain in voting to 1. 2. 3.

a proposal for a resolution to grant stability aid to a member state in principle an alteration of the approved share capital and an adaptation of the maximum loan volume of the European Stability Mechanism as well as the calling of approved share capital not having been paid in and amendments of the financial aid instruments, if the National Council has authorized him to do so on the basis of a proposal of the Federal Government. In cases of special urgency the Federal Minister in charge may consult with the National Council. Without approval by the National Council the Austrian representative must refuse the proposal for such a resolution.

Art 50c (1) The Federal Minister in charge has to inform the National Council immediately in matters of the European Stability Mechanism according to the regulations in the Federal Law on the Standing Orders of the National Council. The Federal Law on the Standing Orders of the National Council has to provide the right of comments by the National Council. (2) To the extent the National Council has made comments in matters of the European Stability Mechanism in due time, the Austrian representative in the European Stability Mechanism has to respect them in negotiations and votings. The Federal Minister in charge has to report to the National Council immediately after the voting and eventually to disclose the reasons for which the Austrian representative did not respect the comments. (3) The Federal Minister in charge regularly reports to the National Council on the measures taken in the frame of the European Stability Mechanism. Art 50d (1) Further details to Art 50b and 50c para 2 and 3 are determined in the Federal Law on the Standing Orders of the National Council. (2) The Federal Law on the Standing Orders of the National Council may provide additional competences of the National Council for the participation in the exertion of the voting right by Austrian representatives in the European Stability Mechanism.

32 See Art 50 para 4 B-VG. 33 Christoph Konrath, Iris Murer, ‘Die Mitwirkung des Nationalrates in Angelegenheiten des Europäischen Stabilitätsmechanismus‘ in Baumgartner (ed), Öffentliches Recht: Jahrbuch 2013 (Wien, Neuer Wissenschaftlicher Verlag, 2013) 368.

530  Rainer Palmstorfer (3) For the participation in matters of the European stability mechanism the committee of the National Council in charge of preparatory advice for federal financial laws elects permanent sub-committees. At least one member of any party represented in the main committee of the National Council must sit on any of these sub-committees. Competences of the National Council under para 2, Art 50b and 50c may be transferred to these standing sub-committees by the Federal Law on the Standing Orders of the National Council. The Federal law on the Standing Orders of the National Council has to provide, that the permanent sub-committees can be convened and meet any time. If the National Council is dissolved by the Federal President according to Art 29 para 1, the participation in matters of the European stability mechanism is incumbent on the permanent sub-committees.

III.  Constitutional Obstacles to EMU Integration Both the TESM and the TSCG were approved by the National Council by a simple majority (Article 50 paragraph 2 B-VG), which implies that they were not considered to violate the Federal Constitution. Both the TESM34 and the TSCG35 have been challenged before the Austrian Constitutional Court, the claim being that these two treaties violated the Federal Constitution.36 However, the arguments that were brought forwards differed. Concerning the TESM, the applicants claimed that the TESM violated the Federal Constitution, in particular for the following reasons: (a) The applicant (the state government of Carinthia) took the view that the National Council had not approved the interpretative declaration regarding the TESM (27 September 2012). (b) It was claimed that the TESM violated EU law. (c) It was claimed that the ESM violated the equality-protection clause contained in Article 7 B-VG.37 (d) It was also argued that the TESM violated Article 13 paragraph 2 and Article 126b paragraph 5 B-VG, because the TESM was considered to be detrimental to the objective of ‘sustainable balanced budgets’ (Article 13 paragraph 2 B-VG) and, respectively, the objectives of ‘thrift and efficiency’ (Article 126b paragraph 5 B-VG).38 (e) Furthermore, Article 9 paragraph 2 B-VG was considered to be violated.39 This clause empowers the National Council – without changing the Federal Constitution and, therefore, without having to meet the higher thresholds contained in Article 44 paragraph 1 B-VG – to transfer competences to an intergovernmental entity as long as these competences can still be regarded as ‘specific’. Related to this claim, it was also argued that the transferred competences were not sufficiently determined resulting in a violation of the principle of legality.40 34 VfSlg 19.750/2013 = ECLI:AT:VFGH:2013:SV2.2012. An English-language version is available at www.vfgh.gv.at/ downloads/VfGH_SV_2-12_ESM_EN_4.4.2017_2.pdf. For a discussion of this ruling also see Claudia Mayer, ‘ESM Treaty in accordance with the Austrian constitution’ (2013) Vienna Journal on International Constitutional Law 385. 35 VfSlg 19.809/2013 = ECLI:AT:VFGH:2013:SV1.2013. An English-language version is available at www.vfgh.gv.at/ downloads/VfGH_SV_2-12_ESM_EN_4.4.2017_2.pdf. 36 Also see the overview in Stefan Griller, ‘Die Wirtschafts- und Währungsunion vor, in und nach der Krise’, in S Griller et al (eds) 20 Jahre EU-Mitgliedschaft Österreichs (Wien, Verlag Österreich, 2015) 847. 37 Art 7 para 1 B-VG reads as follows: ‘All nationals are equal before the law …’. Although protecting against discrimination, this clause was interpreted by the Constitutional Court also to protect against legislation that is based on unobjective reasons. This considerably broadened the scope of Art 7 para 1 B-VG and somehow turned this provision into a kind of black box making it sometimes difficult to predict the outcome of a ruling delivered by the Constitutional Court. 38 Art 126 b B-VG governs the tasks of the Public Audit Office. 39 Art 9 para 1 B-VG reads as follows: ‘By Law or state treaty having been approved according to Art 50 para 1 may be transferred specific federal competences to other states or intergovernmental entities.’ 40 Simply put, this principle ensures the foreseeability of actions taken by public authorities.

Austria  531 (f) The applicant also referred to the newly introduced Articles 50a ff B-VG.41 (g) Apart from that, it was stated that the TESM was a violation of some provisions ensuring the accountability of members of the Federal Government towards the National Council (Article 76 paragraph 1 and Article 142 paragraph 2 lit b B-VG). However, these pleas did not convince the Austrian Constitutional Court. Its basic finding was that the issue of Austria’s participation in the TESM was a political question which was not to be answered by the Constitutional Court.42 Unlike its German counterpart, the Austrian Constitutional Court did not seize the chance to develop a doctrine of overall ‘budgetary responsibility’43 of the National Council. This may also be due to the fact that when deciding upon the constitutionality of the TESM (16 March 2013) Articles 50a–50d B-VG, which provide for the participation of the National Council in ESM affairs, had already entered into force.44 As regards the TSCG, the application was brought by 70 MPs from the opposition. The Constitutional Court held the application partly inadmissible and partly unfounded.45 Again, the starting point of this application was that the TSCG being a state treaty had to be in conformity with the Federal Constitution. (a) It was claimed that Article 3 paragraph lit b TSCG (debt break), a provision that is more stringent than the requirements of EU law (ie Article 2a Regulation 1466/1997), was a restriction of the budgetary sovereignty of the National Council. (b) Article 7 TSCG46 was considered to bind the voting of the Austrian representative in the Council. Considering that this representative is a federal minister this would violate Article 69 paragraph 1 B-VG47 and Article 23e paragraph 3 B-VG.

41 These provisions confer information/participation rights on the National Council in ESM matters. See at section IV. 42 VfSlg 19.750/2013 para 57 states: ‘The question whether or not the Republic of Austria should participate in measures such as the ESM Treaty depends on a wide range of general political and complex financial, monetary and economic policy assessments and considerations (also in terms of possible alternatives), just as much as it is determined by the position of the Republic of Austria in international relations and as a member of the euro area of the European Union. If, in exercising their constitutional power and responsibilities, the Federal Government and the National Council decided that the Republic of Austria should accede to the ESM Treaty and therefore assume obligations which are defined and limited by way of contractual agreement in order to avoid potential unpredictable economic and social losses, neither the principle of equality nor the standard of Article 13 paragraph 2 of the Constitution or of Article 126 paragraph 5 of the Constitution can be held against them. The reservations maintained by the Carinthian Provincial Government which in essence oppose the fact that the Republic of Austria has entered into obligations as a contracting State to the ESM Treaty, do not demonstrate a violation of the said constitutional provisions. These reservations in one way or other always imply that another policy option other than the one adopted by the Federal Government and the National Council would have been more obvious or more reasonable. This is a question of legal policy which is not for the Constitutional Court to assess.’ 43 Cf German Constitutional Court, Press Release No 67/2012 of 12 September 2012, available at www. bu nd e s ve r f assu ng s ge r i cht . d e / Sh are d D o c s / Pre ss e m itte i lu nge n / E N / 2 0 1 2 / bv g 1 2 - 0 6 7 . ht m l ; j s e ss i on i d=9A33141A4D3A03ED2C20F6C7DB3E87F9.2_cid393. 44 See at section IV. 45 A brief summary of this ruling in English can be found at www.vfgh.gv.at/downloads/spr_e_pressrelease_fiscalcompact.pdf. Also see the case comment by Christoph Schramek, ‘European Fiscal Compact is Held to be in Accordance with the Constitution’ (2013) Vienna Journal on International Constitutional Law 218. 46 Art 7 TSCG states: ‘While fully respecting the procedural requirements of the Treaties on which the European Union is founded, the Contracting Parties whose currency is the euro commit to supporting the proposals or recommendations submitted by the European Commission where it considers that a Member State of the European Union whose currency is the euro is in breach of the deficit criterion in the framework of an excessive deficit procedure. This obligation shall not apply where it is established among the Contracting Parties whose currency is the euro that a qualified majority of them, calculated by analogy with the relevant provisions of the Treaties on which the European Union is founded, without taking into account the position of the Contracting Party concerned, is opposed to the decision proposed or recommended.’ 47 A minister is a supreme executive authority, and as such cannot receive instructions. In this regard, the application considered Art 7 TSCG to be a kind of instruction and therefore an infringement of Art 69 para 1 B-VG.

532  Rainer Palmstorfer (c) It was claimed that Article 9 paragraph 2 B-VG was not applicable to the transfer of competences to EU institutions.48 (d) Furthermore, the Severability Clause (Article 2 TSCG) was considered to provide for a new form of norm control not contained in the Federal Constitution.49 The application shared the same fate as the one against the TESM.50 It failed. As with the TESM ruling, we also find Article 13 paragraph 2 B-VG playing a part in the ruling. Concerning Article 13 paragraph 2 B-VG, the Constitutional Court held that it leaves ‘a considerable scope for securing the macroeconomic balance and their striving for sustainable and sound finances’.51 We find some parallels between these two rulings. First, it is striking that many arguments that were brought forward did not have a distinct economic and fiscal bias but concerned rather general Articles in the Federal Constitution. Therefore, both the TESM ruling as well as the TSCG ruling – although quite lengthy – only contain comparatively short passages on economic and fiscal issues themselves. Second, the economic and fiscal rules (eg Article 13 paragraph 2 B-VG) referred to in the rulings are interpreted by the Constitutional Court in a way that only marginally restricts politics. Coming back to the aforementioned Articles 50a–d B-VG, it is questionable whether these information and participation rights were necessary in order to safeguard the compatibility of the TESM with the Federal Constitution. Owing to the fact that the Federal Constitution contained no explicit or implicit requirements for a permanent participation of the National Council in cases such as the ESM, where the Republic of Austria enters into considerable financial commitments at the international level, there is good reason to believe that the TESM could have been concluded also without the adoption of Articles 50a–d B-VG. This is also due to the fact that the Austrian Constitutional Court has not developed a concept comparable to the budgetarysovereignty doctrine of the German Constitutional Court. As regards further steps of EMU integration, a further amendment of the EU Treaties would trigger the procedure under Article 50 paragraph 1 subparagraph 2 in combination with Article 50 paragraph 4 B-VG and would require a constitutional majority. This brings me back to the vague concept of (further) total revisions of the Federal Constitution. As this concept is far from clear, it cannot be said what kind of future Treaty amendment would require another referendum. In brief, there is consensus that there is a red line for further Treaty amendments (also in the field of EMU), the difficult question being where it is to be drawn. However, it is arguable that a considerable loss of fiscal powers (eg taxation) and, respectively, the conferral of such powers to the EU, would be tantamount to a total revision. The Constitutional Court has also accepted the primacy of EU law over Austrian constitutional law.52 As mentioned above, EU law neither serves as a standard nor as an object of judicial review through the Constitutional Court. Against this background, it is questionable whether or not the Federal Constitution contains the so-called integration barriers to secondary law, as there is no express rule on this issue in the Federal Constitution. Here one can distinguish between

48 Like the TESM, the TSCG also makes use of EU institutions in several instances. 49 This view is also taken in Stefan Griller, ‘Zur verfassungsrechtlichen Beurteilung des Vertrags über Stabilität, Koordinierung und Steuerung in der Wirtschafts- und Währungsunion („Fiskalpakt“)’ (2012) JRP 177. Arguing in favour of the compatibility of the TSCG with the Federal Constitution: Michael Potacs, Claudia Mayer, ‘Fiskalpakt verfassungswidrig?’ (2013) JRP 140. 50 Interestingly enough, the Constitutional Court – owing to procedural reasons – did not elaborate on the compatibility of the debt break with the constitutional concept of budgetary sovereignty. 51 Schramek, ‘European Fiscal Compact is Held to be in Accordance with the Constitution’ (n 44) 222. 52 VfSlg 15.427/1999 = ECLI:AT:VFGH:1999:B1625.1998.

Austria  533 secondary law violating primary EU law and secondary law in conformity with primary EU law. For both constellations there is still no case law by the Constitutional Court. As regards the first constellation, it thus has to be pointed out that the Austrian Constitutional Court, unlike the German Constitutional Court, has not developed an ultra vires doctrine. If the Constitutional Court doubts the conformity of secondary EU law with primary EU law, it makes use of the preliminary reference procedure under Article 267 TFEU. Although the Austrian Constitutional Court is not hesitant about making use of preliminary reference procedures, such references typically concern the interpretation of EU law and not its validity.53 If at all, the ultra vires doctrine might only be applied concerning rulings of the European Court of Justice, if such a ruling is an obviously grossly flawed interpretation of EU law.54 Also the existence of integration barriers under the Federal Constitution concerning secondary EU law in conformity with primary EU law is far from being clear. One stance in the literature argues that secondary EU law is only acknowledged if it complies with the basic constitutional principles.55 Again, the Constitutional Court has never touched upon this issue. Concerning the recent EMU reform proposals (Saint-Nicolas package), it has to be pointed out that almost every measure shall take the form of secondary law.56 In other words, the Commission does not consider a Treaty amendment to be necessary. From the perspective of the Federal Constitution, this raises the question of integration barriers to secondary EU law. But even if one takes the strict view that secondary law has to be in conformity with the basic constitutional principles of the Federal Constitution, it is difficult to argue for a violation of the said principles. The EMF proposal,57 being the most far-reaching of the Commission proposals, will certainly impose considerable financial obligations on Austria58 and, compared with the existing ESM, the voting power of the Austrian representation in the EMF will also be weakened.59 Yet, this does not seem to be tantamount to a conflict with a basic constitutional principle of the Federal Constitution. It has to be pointed out that by means of Articles 50a–d B-VG the Federal Constitution already acknowledges Austria’s participation in the ESM, that is, an entity comparable to the EMF, the latter, however, being an entity governed under EU law. Against this background it would be inconsistent to argue that the ESM is compatible with the basic constitutional principles, whilst the EMF violates them.

53 See, however, VfSlg 19.702 = ECLI:AT:VFGH:2012:G47.2012. This case concerned the validity of the Data Retention Directive (ie Directive 2006/24/EC). 54 Cf Griller, ‘Blockademöglichkeiten gegen die Einführung des Euro?’ (n 20) 230. 55 See, eg, Heinz Mayer, Gabriele Kucsko-Stadlmayer, Karl Stöger, Bundesverfassungsrecht, 11th edn (Wien, Manz, 2015) para 246/10. 56 Cf European Commission, ‘Communication on new budgetary instruments for a stable euro area within the Union framework’, COM (2017) 822; European Commission, ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’, COM (2017) 824; European Commission, ‘Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006’, COM (2017) 826; European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’, COM (2017) 827. 57 European Commission ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’, COM (2017) 827. 58 Unlike the TESM, the proposed EMF Regulation would be a legal act under EU law. That is, Austria would be obliged under EU law (and not just under public international law) to fulfil its obligation concerning the EMF. 59 For example, the decision to grant financial aid no longer requires unanimity of the Board of Governors but only a reinforced qualified majority (cf Art 5 para 7(a) Annex to the EMF Regulation Proposal).

534  Rainer Palmstorfer More importantly, the scope of the relevant constitutional principle of democracy is far from being clear. Unlike the German Constitutional Court, the Austrian Constitutional Court has never interpreted the Federal Constitution in way that it contains the doctrine of overall budgetary sovereignty, that is, an implicit constitutional rule demanding for the veto power of the Austrian parliament concerning any decision taken at the European level that might lead to considerable financial obligations of Austria. Likewise, the other EMU reform proposals do not conflict with the basic constitutional principles: As regards the European Investment Stabilisation Function60 and the Reform Support Programme,61 these financial instruments do not conflict with the constitutional principle of democracy. The same is true for the proposal for a directive to incorporate the debt break of the TSCG into EU law.62 Again, this proposal touches upon the constitutional principle of democracy, as the debt break limits the scope of the National Council and the state parliaments as budgetary legislators. However, it would go too far to assume a violation of this constitutional principle by the proposal. Regarding the plan for a Minister of Economy and Finance,63 that is, to elect a member of the Commission as president of the Eurogroup, this plan is also not problematic from the perspective of the Federal Constitution. To conclude, a preliminary assessment shows that the Federal Constitution does not contain integration barriers concerning the proposed EMU measures. Legal feasibility issues concerning the said EMU reform proposals are raised rather by the EU legal order than by the Federal Constitution.

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law Apart from Articles 50a–d B-VG, Austrian measures concerning the EMU reform were adopted by means of law ranking below constitutional law. For example, Austria’s involvement in the European Financial Stability Facility is mirrored in §2a Balance-of-Payments Stabilisation Law (Zahlungsbilanzstabilisierungsgesetz).64 As was shown above, both the TESM and the TSCG were approved by the National Council as treaties lacking constitutional rank. It has to be pointed out that the competence to implement EU law (and public international law) follows the general division of legislative/executive competences between the federation and the states. This is why the Austrian Stability Pact 2012 coordinates the respective competences of the federation, the states and the communities65 in the field of budgetary law. In order to meet the obligations imposed by the TSCG as well as the Six Pack, the Austrian Stability Pact 2012 was agreed upon. Article 4 ASP 2012 contains a rule to transpose into Austrian law Article 3 TSCG – the debt break. In a recent report, the Commission came to the conclusion that the Austrian implementation of the debt break was in conformity with the requirements of the TSCG.66 60 European Commission ‘Proposal for a Regulation on the establishment of a European Investment Stabilisation Function’, COM (2018) 387. 61 European Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on the establishment of the Reform Support Programme’, COM (2018) 391. Also see COM (2017) 826. 62 COM (2017) 824. 63 European Commission, ‘Communication on a European Minister of Economy and Finance’, COM (2018) 823. 64 Federal Law Gazette I No 31/2010. 65 The states have the competence to adopt the legislation for the set-up of communities. 66 See European Commission, ‘Report presented under Article 8 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union’ C(2017) 1201 final, Annex 1.

Austria  535 Article 4 ASP 2012 is referred to as the Austrian debt break, a rule that splits up the structural deficit allowed under Article 3 TSCG among the federation, the states and the communities. The overall structural deficit shall not exceed 0.45 per cent of the gross domestic product, which shows that the Austrian debt break is even stricter than Article 3 TSCG. Although Article 4 ASP 2012 ranks below federal constitutional law, this provision is binding on the federation, the states and the communities as contracting parties when they take decisions on their respective budgets. Consequently, the National Council – being an institution of the federation – as budgetary legislator is bound by Article 4 ASP 2012. In order to ensure the compliance with the Austrian debt break (and other ASP 2012 provisions), the ASP 2012 set up a Committee involving representatives from the contracting parties that can sanction ASP 2012 violations. As a last resort, it is also possible to bring such a dispute before the Austrian Constitutional Court. However, this mechanism has not been resorted to yet. Also the recent fine imposed on Austria for manipulation of the debt data in Land Salzburg67 has not triggered a sanction procedure under the ASP 2012 yet. Another important step was the creation of the Austrian Fiscal Council68 (Fiskalrat) by a simple federal law (hereafter: Fiscal Council Law).69 The Fiscal Council is an expert body with monitoring tasks concerning fiscal policies in Austria. Apart from that, the Fiscal Council can also make recommendations on fiscal policy and carries out fiscal policy studies. The Fiscal Council is independent,70 a feature that shows that the Fiscal Council is designed to be an independent body in the national budgetary surveillance framework as required by Article 5 Regulation 473/2013/EU. Since its inception, the Austrian Fiscal Council has been very active in performing its tasks and has produced several studies and recommendations.71 Owing to the importance of the process of the adoption of secondary EU law, the Federal Constitution provides for participation rights of the National Council in EU issues. These participation rights might be of importance concerning the adoption of the EMU reform proposals of December 2017. The participation of the National Council is governed by Article 23e B-VG, which also served as a model for the aforementioned Articles 50a–d B-VG. However, as ESM affairs are not a ‘project within the framework of the European Union’ (Article 23e paragraph 1 B-VG), the involvement of the National Council could not be based on this provision. Article 23e paragraph 1 B-VG provides for information rights of the National Council.72 As well as that, Article 23e paragraph 3 B-VG enables the National Council to influence the behaviour of the Federal Minister (as the Austrian representative in the Council of the European Union).73

67 Council Implementing Decision (EU) 2018/818 imposing a fine on Austria for the manipulation of debt data in Land Salzburg, [2018] OJ L137/23. 68 Also see www.fiskalrat.at/en. 69 Federal Law Gazette I No 143/2013. 70 Section 1 para 2 Fiscal Council Act. 71 See www.fiskalrat.at/en. 72 Art 23e para 1 B-VG, ‘The competent federal minister shall without delay inform the National Council and the Federal Council about all projects within the framework of the European Union and afford them opportunity to vent their opinion.’ 73 Art 23e para 3 B-VG, ‘If the National Council has presented comments to a project aimed at passing a legal act which would affect the passing of federal acts in the field governed by the legal act, the competent federal minister may deviate in negotiations and votings in the European Union from such comment only for deviating integrating and foreign political reasons. If the competent federal minister intends to deviate from the comment of the National Council he has to contact the national Council again. If the project is aimed at passing a binding legal act which either requires the passing of federal constitutional regulations or contains rules which can only be passed by such regulations, such deviation is only admissible if the National Council does not object within adequate time. The competent federal minister has to report to the National Council immediately after the voting in the European Union and eventually name the reasons, for which he deviated from the comment.’

536  Rainer Palmstorfer Likewise, also the Federal Council – being the chamber representing the interests of the states – has participation rights laid down in Article 23e paragraph 4 B-VG.74 The Federal Constitution also addresses the issue of subsidiarity and its control.75 All in all, the involvement of the National Council in EU affairs is considered to be comparatively great.76

V.  Resulting Relationship between EMU Related Law and National Law The EMU reforms triggered by the outbreak of the euro crisis hardly left their mark on the Federal Constitution. Apart from Articles 50a–d B-VG, the Federal Constitution has not been amended and, more importantly, it is questionable whether this amendment was necessary at all. For the most part, the Austrian measures in the context of the recent EMU reform have taken the form of acts ranking below the Federal Constitution. Be it Austria’s participation in the EFSF or the transposition of the Six Pack, the Two Pack and the TSCG into Austrian law (eg, Austrian Fiscal Council), the Austrian measures have taken the form of simple federal laws or of agreements between the federation and other public entities. It has to be pointed out that it was not EU law but the TESM and the TSCG (ie Treaties outside EU law) that raised the most controversial constitutional questions ultimately leading to two rulings of the Austrian Constitutional Court. However, also these rulings show that the Federal Constitution contains few restrictions in the relevant field of law. Likewise, Austrian constitutional law does not seem to contain insurmountable barriers to further EMU integration through a Treaty change. True, the changing of EU Treaties calls for higher thresholds as regards their approval in parliament. However, so far, Treaty changes have never been rejected by the Austrian parliament. As regards Article 44 paragraph 3 B-VG, that is, the issue of mandatory referenda regarding a total revision, it will depend whether or not the prospective Treaty amendment conflicts with the basic constitutional principles. As the concept of a total revision is rather vague, a lot of room is left for interpretation and, as shown by history, total revisions are rare. More importantly, it is questionable whether or not the basic constitutional principles can still be used as yardsticks concerning secondary EU law – such as the EMU reform proposals of December 2017 (ie the Saint-Nicolas package). Even if one regards the basic constitutional principles relevant in this case, it is rather doubtful whether the recent EMU reform proposals infringe the basic constitutional principles. To sum up, the Federal Constitution was and is quite flexible as regards the recent development of the EMU.

74 Art 23e para 4 B-VG, ‘If the Federal Council has presented comments to a project aimed at passing a binding legal act which either requires the passing of Federal Constitutional regulations limiting the competence of the provinces in legislation and executive powers according to Art 44 para 2, or contains regulations which can only be passed by such regulations, the competent federal minister may deviate from such comment in negotiations or voting in the European Union only for compelling international and foreign political reasons. A deviation however is only admissible if the Federal Council does not object within adequate time. The competent federal minister has to report to the Federal Council immediately after the voting in the European Union and to eventually name the reasons for which he deviated from such comment.’ 75 This is done by Arts 23g–h B-VG. 76 Berka, Verfassungsrecht (n 4) para 325.

Austria  537

References W Berka, Verfassungsrecht, 7th edn (Wien, Verlag Österreich, 2018). Council Implementing Decision (EU) 2018/818 imposing a fine on Austria for the manipulation of debt data in Land Salzburg [2018] OJ L137/23. European Commission, COM (2017) 822 ‘Communication on new budgetary instruments for a stable euro area within the Union framework’. European Commission, COM (2017) 823 ‘Communication on a European Minister of Economy and Finance’. European Commission, COM (2017) 824 ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’. European Commission, COM (2017) 826 ‘Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006’. European Commission, COM (2017) 827 ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’. European Commission, COM (2018) 387 ‘Proposal for a Regulation on the establishment of a European Investment Stabilisation Function’. European Commission, COM (2018) 391 ‘Proposal for a Regulation of the European Parliament and of the Council on the establishment of the Reform Support Programme’. European Commission, ‘Report presented under Article 8 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union’ C(2017) 1201 final, Annex 1. L Frank, ‘Haushaltsrecht’ in E Pürgy (ed), Das Recht der Länder II/2 (Wien, Sramek Verlag, 2012) 693. S Griller, ‘Blockademöglichkeiten gegen die Einführung des Euro?’ (1997) Journal für Rechtspolitik 221. S Griller, ‘Zur verfassungsrechtlichen Beurteilung des Vertrags über Stabilität, Koordinierung und Steuerung in der Wirtschafts- und Währungsunion („Fiskalpakt“)’ (2012) JRP 177. S Griller, Grundlagen und Methoden des Verfassungs- und Verwaltungsrechts, 4th edn (Vienna, Verlag Österreich, 2015). S Griller, ‘Die Wirtschafts- und Währungsunion vor, in und nach der Krise’ in S Griller et al (eds) 20 Jahre EU-Mitgliedschaft Österreichs (Wien, Verlag Österreich, 2015) 791. A Janko, Gesamtänderung der Bundesverfassung (Wien, Verlag Österreich, 2004). C Konrath, I Murer, ‘Die Mitwirkung des Nationalrates in Angelegenheiten des Europäischen Stabilitätsmechanismus’ in Baumgartner (ed), Öffentliches Recht: Jahrbuch 2013 (Wien, Neuer Wissenschaftlicher Verlag, 2013) 351. C Mayer, ‘ESM Treaty in accordance with the Austrian constitution’ (2013) Vienna Journal on International Constitutional Law, 385. H Mayer, G Kucsko-Stadlmayer, K Stöger, Bundesverfassungsrecht, 11th edn (Wien, Manz, 2015). T Öhlinger, M Potacs, EU-Recht und staatliches Recht: Die Anwendung des Europarechts im innerstaatlichen Bereich, 6th edn (Wien, Lexis Nexis, 2017). M Potacs, C Mayer, ‘Fiskalpakt verfassungswidrig?’ (2013) JRP 140. C Schramek, ‘European Fiscal Compact is Held to be in Accordance with the Constitution’ (2013) Vienna Journal on International Constitutional Law 218. M Stelzer, An Introduction to Austrian Constitutional Law, 3rd edn (Vienna, Lexis Nexis, 2014). K Tuori, K Tuori, The Eurozone Crisis: A Constitutional Analysis (Cambridge, Cambridge University Press, 2014). E Wiederin, ‘Gesamtänderung, Totalrevision und Verfassungsänderung‘ in M Akyürek et al (eds) Staat und Recht in europäischer Perspektive. Festschrift Heinz Schäffer (München, Beck, 2006) 961.

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22 Poland DARIUSZ ADAMSKI

Abstract: The Polish membership of the Economic and Monetary Union (EMU) does not have any consequences for the domestic constitutional system, which is primarily a result of the country’s ‘EMU membership with a derogation’ status. As this status entails no actual legal obligation to join the eurozone and economic as well as political factors do not support the adoption of the single currency by Poland, only the softest mechanisms of economic coordination within the economic node of the EMU can apply to it. For the very same reason, however, the Polish constitutional system does not create serious obstacles to EMU’s further integration, as far as this integration is limited to the eurozone countries. Conversely, further EMU integration with a practical impact on Poland as well would face a demanding ratification process if it were based on a new international agreement transferring more powers to the international or supranational level. In the alternative scenario of an integration scheme adopted on the basis of the existing Treaties, the compliance of such a scheme with the Polish Constitution and the principle of conferral could be litigated before the Polish Constitutional Tribunal. Key words: EMU membership with a derogation, constitutional review, social market economy, the Third Republic, European-friendly interpretation of Constitution, principle of primacy, convergence criteria, monetary sovereignty, 2003 Accession Treaty, National Bank of Poland, constitutional amendment, nationwide referendum, small ratification, big ratification, integration clause, 2005 Accession Treaty decision, 2005 European Arrest Warrant case, sovereign debt crisis, European Stability Mechanism, Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, Great Recession, coronation theory, monetarist theory.

I.  The Main Characteristics of the National Constitutional System and Constitutional Culture Poland has a long, but paradoxically very shallow, constitutional tradition. The first modern, and progressive, Constitution of the Polish-Lithuanian Commonwealth was adopted in May 1791, only a few years after the US Constitution and a few months ahead of the first French written Constitution. However, it was very short-lived. The next year a coalition of domestic reactionary forces and a foreign invasion brought it to an end. As the Polish-Lithuanian Commonwealth lost its independence only a few years later, the next Polish constitutional charter was only adopted several generations later, in March 1921. The democratic system that the so-called March

540  Dariusz Adamski Constitution established was again fleeting. It ended in 1926, when a coup, and constitutional amendments which followed a few months later, rescinded the separation of powers, centralising political power in the executive branch. This executive domination was only reinforced by the subsequent Constitution, adopted in 1935. The communist regime instituted in the aftermath of the Second World War produced another Constitution, enacted in 1952. During the transition process to the democratic political system, it was overhauled by two amendments enacted in 1989 and then by the so-called ‘Small Constitution’ of 1992. Five years later, an entirely new Constitution, in force until now, was adopted (the Constitution of 1997).1 Its 243 articles, brought together in 13 chapters,2 establish a system based on the rule of law and separation of powers. As the Constitution of 1997 proclaims, ‘the Republic of Poland shall be a democratic state ruled by law and implementing the principles of social justice’ (Article 2), while ‘the organs of public authority shall function on the basis of and within the limits of the law’ (Article 7). This Constitution should be directly applicable by any court as a matter of principle (Article 8(2)). Furthermore, ‘the system of government of the Republic of Poland shall be based on the separation of and balance between the legislative, executive and judicial powers’ (Article 10(1)). Legislative powers are vested in the Sejm (the lower chamber of the parliament) and the Senate, the executive power is to be exercised by the president and the Council of Ministers and the judicial power is bestowed on courts and tribunals (Article 10(2)). The constitutional review is centralised in the Constitutional Tribunal (the Tribunal), which consists of 15 judges elected for the non-renewable term of nine years (Article 194(1) Constitution of 1997). More specifically, the Tribunal verifies the conformity of: –– statutes and international agreements with the Constitution, –– a statute with ratified international agreements whose ratification required prior consent granted by statute, –– legal provisions issued by central organs to the Constitution, ratified international agreements and statutes, –– the purposes or activities of political parties to the Constitution, and –– adjudicates constitutional complaints (Article 188 Constitution of 1997). According to the Constitution’s programmatic provision, ‘a social market economy, based on the freedom of economic activity, private ownership, and solidarity, dialogue and cooperation between social partners, shall be the basis of the economic system of the Republic of Poland’ (Article 20). It is uncontroversial, however, that ‘no specific model of an economic system can be inferred’ from the principle of a social market economy as enshrined in the Constitution, ‘or – all the more so – no particular specific measures’.3 The Constitution of 1997 enshrines the political system established after the collapse of the communist regime in 1989–90, which is universally described as the Third Republic.4 It is liberal

1 Konstytucja Rzeczypospolitej Polskiej z dnia 2 kwietnia 1997 r. uchwalona przez Zgromadzenie Narodowe w dniu 2 kwietnia 1997 r., przyjęta przez Naród w referendum konstytucyjnym w dniu 25 maja 1997 r., podpisana przez Prezydenta Rzeczypospolitej Polskiej w dniu 16 lipca 1997 r., Dz U 1997 nr 78 poz 483, with further amendments. 2 The chapters are entitled: ‘The Republic’; ‘The freedoms, rights and obligations of persons and citizens’; ‘Sources of law’; ‘The Sejm and the Senate’; ‘The President of the Republic of Poland’; ‘The Council of Ministers and government administration’; ‘Local government’; ‘Courts and tribunals’; ‘Organs of state control and for defence of rights’; ‘Public finances’; ‘Extraordinary measures’; ‘Amending the constitution’; ‘Final and transitional provisions’. 3 Bogusław Banaszak, Konstytucja Rzeczypospolitej Polskiej. Komentarz, 2nd edn (Warsaw, C H Beck, 2012) 158. 4 The First Polish Republic began with the establishment of the Polish-Lithuanian federation in 1569 and ended with the third partition of Poland in 1795. The second lasted from 1918–45 (in exile since 1939).

Poland  541 and progressive in its overtone also outside the economic realm. Furthermore, this Constitution was adopted by an Assembly dominated by the post-communist social democratic party and liberals, against the far-right fringe. All of the particularities have proven to be fraught with consequences. The far-right party – which subsequently grew into the main political force in Poland – has consistently called for an introduction of the Fourth Republic, based on openly conservative values and world views. It has consistently depicted the Third Republic and its constitutional system as an attempt to solidify a transitional setup privileging the groups responsible for the country’s plight under the communist regime. In the 2015 general election, this party managed to win an absolute majority in the parliament (51 per cent). Unable to form a coalition necessary to introduce a new Constitution, it aimed at the independence of the Constitutional Tribunal and then the third branch more generally.5 Its actions have been challenged before the CJEU on the grounds that they undermine the right to effective judicial protection by offending judicial independence.6 However, the democratic retreat manifesting itself in advancing corrosion of the judiciary’s independence regardless of its constitutional guarantees has progressed nonetheless. The political contestation and the attacks on democratic constitutional arrangements are not unprecedented in Polish history. They were also clearly discernible in the constitutional practice of all the previous Polish Constitutions, each of which was soon attacked by political forces opposing their values and principles. This was, in particular, the case with the progressive Constitutions of 1791 and 1921. The less democratic Constitution of 1935 was spared a similar fate largely due to the external circumstances, which nonetheless ultimately brought it to an abrupt end. The prevailing methods of constitutional interpretation correspond with the pattern of an unstable political environment. While these methods have been subject to ongoing theoretical debate,7 it is essentially accepted by the legal doctrine that on the one hand, the same interpretative methods which apply to other legal norms should govern constitutional interpretation. This conclusion builds on the finding that – regardless of its hierarchically higher position in the legal system – the Constitution is an act of law. Without applying to it universal interpretation tools, predictable and consistent application of the Constitution would hardly be possible. On the other hand, however, it is admitted that, due to the unavoidably more open-ended wording of constitutional provisions compared to the rest of the legal system, constitutional interpretations are more dynamic. This feature, which renders the Constitution more malleable than would otherwise be the case, includes the evolving socioeconomic reality and world views of the interpreter into the interpretation process. This has been particularly obvious in Poland since 2015, when the previous reading of the Constitution regarding certain systemic aspects, especially the division of powers, was replaced by a different stance in the cases decided by the newly appointed judges of the Constitutional Tribunal. With the caveat that further swings in the constitutional interpretation would fit into the historical picture, a cautious and rather conservative reading of the Polish Constitution in the context of EU membership has been typical of the stance represented by the Constitutional

5 For a thorough discussion, see Wojciech Sadurski, ‘How Democracy Dies (in Poland): A Case Study of Anti-Constitutional Populist Backsliding’ (2018) 18/01 Sydney Law School Research Paper. 6 Esp Case C 619/18, Commission v. Poland, pending. 7 See, for instance, Marek Smolak (ed) Wykładnia konstytucji. Aktualne problemy i tendencje (Warsaw, Wolters Kluwer, 2016); Maciej Pach, ‘Specyfika wykładni konstytucji w konstytucyjnym państwie prawa na przykładzie Konstytucji RP z 2 kwietnia 1997 r.’ in M Jabłoński, J Kaczor, M Pichlak (eds) Prawo i polityka w sferze publicznej. Perspektywa wewnętrzna (Wrocław, E-Monografie WPAE, 2017) 13; Adam Jakuszewicz, ‘Wykładnia konstytucji jako proces konkretyzacji’ (2014) 17 Przegląd Prawa Konstytucyjnego, 73.

542  Dariusz Adamski Tribunal since the country’s accession to the EU. On the one hand, the Tribunal has held that the Constitution should be interpreted in a European-friendly way. Accordingly, ‘when there are several possible interpretational possibilities, the one closest to the acquis communautaire should be chosen’, unless ‘Polish law indicates a different approach to the problem (strategy for solving it) established in the period preceding the formal accession.’8 On the other hand, though, the case law of the Constitutional Tribunal has consistently precluded the principle of primacy of EU law for the Constitution. Already in the so-called Accession Treaty decision of 2005, the Tribunal pointed at Article 91(2) Constitution, which provides that ‘an international agreement ratified upon prior consent granted by statute shall have precedence over parliamentary statutes (pol ustawy), if such an agreement cannot be reconciled with the provisions of the statutes’.9 A contrario, the same cannot apply to the Constitution, for it is not a parliamentary statute. Hence EU law can have no precedence over the Constitution. As the Tribunal added, the Constitution, therefore, remains – due to its particular significance – the “supreme law of the Republic of Poland” in relation to all international agreements binding on the Republic of Poland … Article 8(1) Constitution10 entails the primacy of its effects and application.11

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments Polish membership of the EMU does not have any consequences for the domestic constitutional system, primarily a result of the country’s ‘EMU membership with a derogation’ status. For this very reason this status, as stemming from EU law, should be discussed more broadly here first. As an EMU country with a derogation, Poland belongs to the group of the ‘Member States in respect of which the Council has not decided that they fulfil the necessary conditions for the adoption of the euro’ (Article 139(1) TFEU). It does not participate in the monetary node of the EMU, and only the softest mechanisms of economic coordination within its economic node can apply to it.12 All EMU countries with a derogation are politically expected to join the monetary union. This political expectation evolves over time, depending on the situation in the eurozone, as well as on the economic and political performance of the countries outside the single currency area. However, what is arguably more important in practice, it does not translate into any legal obligation to join the monetary union. Certainly, the preamble to the TEU states that the signatory countries are ‘resolved … to establish an economic and monetary union including, in accordance with the provisions of this Treaty and of the Treaty on the Functioning of the European Union, a single and stable currency’. The ‘provisions of the Treaties’ include Article 3(4) TEU, according to which ‘the Union shall establish an economic and monetary union whose currency is the euro’. But, nonetheless, the Treaties also – unconditionally – accept the existence of the countries with a derogation. As further discussed below, no specific provision of the Treaties imposes any actual obligation to terminate the status

8 Decision of the Constitutional Tribunal of 28 January 2003, Case K 2/02, Sec III.4.7. 9 Decision of the Constitutional Tribunal of 11 May 2005, Case K 18/04, Sec III.4.2. 10 Which states ‘the Constitution shall be the supreme law of the Republic of Poland’. 11 The same stance was subsequently maintained in the decisions of the Constitutional Tribunal of 24 November 2010, Case K 32/09 11 (Lisbon Treaty) and of 16 November 2011, Case SK 45/09. 12 Art 139(2) TFEU.

Poland  543 of an EMU membership with a derogation, which is significant in the interpretation of the quoted provision of the preamble to the TEU. If this preamble makes the accession to the eurozonecontingent on detailed provisions of the Treaties, and if these provisions render it dependent on the political decision of the country to adopt the single currency, then no obligation in this respect could be inferred from the Treaty. It may also be tempting to draw a legal obligation to join the single currency area from the wording of the 2003 Accession Treaty covering Poland as well. According to its Article 4, ‘each of the new Member States shall participate in Economic and Monetary Union from the date of accession as a Member State with a derogation within the meaning of Article 122 of the EC Treaty’. However, this provision merely states what can otherwise be inferred from the Treaty: the act of accession to the EU neither prevents the accession countries from joining the EMU (when they meet the convergence criteria) nor does it automatically include them in the single currency area.13 Because none of the countries covered by this Accession Treaty fulfilled the convergence criteria in 2004,14 each automatically received the status of an EMU member with a derogation. The Accession Treaty says only that this status is retained as long as all the convergence criteria are unmet and as long as the formal procedure for accessing the eurozone, established by Article 140 TFEU, is not successfully completed. No different legal requirement of terminating the ‘EMU country with a derogation’ status can be deduced from the fact that only Denmark and the UK had secured specific protocols on their opt-out from the single currency, which gave them an exemption (instead of a derogation) status.15 These particular protocols should be seen in their historical context. When introduced to the Treaties during the Maastricht process, they were to make sure the single currency would not be imposed on the two countries against the will of their societies, while at the same time assuring that neither the UK nor Denmark would attempt to block the monetary integration between the remaining Member States.16 The countries subsequently joining the EU were not in a comparable position, allowing them, even only hypothetically, to derail the transition to the third stage of the single currency’s adoption process.17 None of the countries was as ideologically opposed to the EMU during the accession process as was Thatcher’s government of the early 1990s and none has openly precluded the adoption of the single currency as a matter of principle. No formal commitments removing the political expectation to ultimately join the eurozone have, therefore, been necessary in the case of this group of EU countries. Among with all the specific provisions of the Treaties, only one may evoke an association with an obligation to join the eurozone. Pursuant to Article 140(1) TFEU, at least once every two years, or at the request of a member state with a derogation, the Commission and the European Central Bank shall report to the Council on the progress made by the member states with a derogation in fulfilling their obligations regarding the achievement of economic and monetary union (emphasis added).

13 For a very similar point, see Antonio Estella, Legal Foundations of EU Economic Governance (Cambridge, Cambridge University Press, 2018), 48–9. 14 The Protocol (No 13) on the convergence criteria mentions four such criteria: price stability, soundness and sustainability of public finances measured by government deficits and government debt, exchange-rate stability and low long-term interest rates. 15 Now Protocol (No 15) on certain provisions relating to the UK of Great Britain and Northern Ireland and Protocol (No 16) on certain provisions relating to Denmark. 16 As Estella pointed out accurately, ‘the UK and Denmark were given this choice; in exchange, both countries legally committed themselves not to impede other Member States from adopting the euro’: Estella, Legal Foundations, 47. 17 Which started in January 1999 with fixing the ultimate euro conversion rates of the participating monetary units.

544  Dariusz Adamski The introduction of the single currency is unquestionably a part of ‘the achievement of economic and monetary union’.18 However, one should consider in this context that Article 140 TFEU only establishes a procedure of verifying whether the economies of the countries outside the eurozone meet the convergence criteria. If they do, it devises an institutional path for fixing the exchange rate at which the domestic currency is replaced by the euro. Meeting the convergence criteria – a prerequisite for this step – is an economically and politically complicated process requiring a substantial commitment by both the national government of the aspiring country and its society. While it used to be believed before the sovereign debt crisis that the existence of such a commitment would be a foregone conclusion, because the single currency had been promising economic stability and prosperity, the subsequent developments all but reversed this assumption. Article 140 TFEU is sufficiently open-textured to accommodate this reality, as it places the responsibility with the aspiring country not only in the efforts to achieve the convergence criteria but also ultimately on the decision on the conversion rate at which the euro would replace the national currency. It is remarkable that even at this last stage of joining the single currency area the integration process can be derailed by the government of the accessing country,19 in which case this country would retain its ‘EMU membership with a derogation status’. All in all, therefore, and contrary to the frequent assertions confusing political expectations and legal obligations,20 it is impossible to perceive the process of adopting the single currency either as a legal obligation or legal right. EU law certainly establishes the procedure and the economic preconditions (the convergence criteria) for adopting the single currency by the countries with a derogation. But it does not go any further than creating a path for the aspiring countries to achieve their aspirations. This legal position of the ‘EMU countries with a derogation’, as determined by EU law, is easy to explain in broader socioeconomic terms. Accession to the eurozone ranks among some of the most important decisions to make for every EU society – economically, politically and symbolically. It entails the costs of meeting the convergence criteria and subsequently – potentially very serious, as the sovereign debt crisis demonstrated – costs of countering the destabilising effects of the single currency imposed on very divergent economies. The Treaty framework, which essentially leaves it to national political processes of the societies of the non-eurozone countries to assess whether the perceived benefits of joining the eurozone surpass its costs, recognises the associated sensitivities. Also, it manifests the conviction that any attempt to force the countries with a derogation to abandon its national currency, either through a legal obligation or a political pressure, would be untenable – because meeting the convergence criteria ultimately depends on the domestic willingness to do so – and potentially self-defeating in practice. Any forced

18 As confirmed, among others, by Art 3(4) TEU or Art 119(2) TFEU. 19 According to Art 140(3) TFEU, ‘if it is decided … to abrogate a derogation, the Council shall, acting with the unanimity of the Member States whose currency is the euro and the Member State concerned, on a proposal from the Commission and after consulting the European Central Bank, irrevocably fix the rate at which the euro shall be substituted for the currency of the Member State concerned, and take the other measures necessary for the introduction of the euro as the single currency in the Member State concerned’ (emphasis added). 20 For an early account in this spirit see Jean-Victor Louis, ‘The Economic and Monetary Union: Law and Institutions’ (2004) 41 Common Market Law Review, 575, 603–5, who argued that Sweden violated (the spirit of) the Treaty when it deliberately failed to meet one of the convergence criteria – participation in the Exchange Rate Mechanism. At the same time, the author posited that this infringement cannot be remedied legally, rendering the corresponding obligation unenforceable. Thomas Beukers and Marijn van der Sluis, ‘Differentiated Integration from the Perspective of Non-Euro Area Member States’ in Thomas Beukers, B De Witte and C Kilpatrick (eds), Constitutional Change through Euro-Crisis Law (Cambridge, Cambridge University Press, 2017) 143, represent a very similar stance. They assert, without referring to any specific legal norm, that: ‘the Maastricht Treaty and the Accession Treaties included the obligation for non-euro area Member States to strive for admission to the euro area’ (169).

Poland  545 accession of a country unsuited to the necessities of a hard currency regime could endanger both its macroeconomic performance and ‘the stability of the euro area as a whole’.21 The very nature of the Polish ‘country with a derogation’ status, therefore, entails no significant implications for the domestic legal system, which explains why the country’s EMU membership is in no meaningful way founded in the Polish constitutional setup. There is no different pattern necessary for the very superficial consequences of the Polish participation in the economic tenet of the EMU, while no intention to join the eurozone further justifies the Polish monetary sovereignty and the constitutional indifference towards the EMU.

III.  Constitutional Obstacles to EMU Integration From the perspective of the Polish domestic constitutional system, the most rudimentary obstacles to any actual EMU integration stem from this country’s monetary sovereignty. The corresponding key provision is Article 227(1) Constitution, which states that the central bank of the State shall be the National Bank of Poland. It shall have the exclusive right to issue money as well as to formulate and implement monetary policy. The National Bank of Poland shall be responsible for the value of Polish currency.

Some of the other constitutional rules governing the National Bank of Poland (pol Narodowy Bank Polski) could still apply after a hypothetical Polish accession to the eurozone.22 On the other hand, in particular, those provisions which apply to the institution in charge of monetary policy would have to be amended in order to achieve their consistency with the eurozone’s institutional system. An example is Article 227(2) of the Constitution, which indicates three main internal organs of the Polish Central Bank: the President of the National Bank of Poland, the Council for Monetary Policy and the Board of the National Bank of Poland. The first and third of these would still be relevant in the scenario when Poland joins the eurozone. The same would not apply to the Council for Monetary Policy, however. This is because it implements the country’s monetary policy, based on its aims formulated annually and presented to the Sejm (Article 227(6) Constitution). In contrast, pursuant to Article 12(1) Statute of the European System of Central Banks and of the ECB, the monetary policy of the eurozone is defined by the Governing Council of the ECB. According to the Polish Constitution, a bill to amend the Constitution shall be adopted by the Sejm by a majority of at least two-thirds of votes in the presence of at least half of the statutory number of Deputies, and by the Senate by an absolute majority of votes in the presence of at least half of the statutory number of Senators (Article 235(4)).23

21 The phrase used in Pringle, C-370/12, EU:C:2012:756, § 56. 22 Eg Art 227(3) Constitution of 1997, according to which ‘the Sejm, on request of the President of the Republic, shall appoint the President of the National Bank of Poland for a period of 6 years’, Art 227(4) ‘the President of the National Bank of Poland shall not belong to a political party, a trade union or perform public activities incompatible with the dignity of his office’, or Art 227(7) ‘the organization and principles of activity of the National Bank of Poland, as well as detailed principles for the appointment and dismissal of its organs, shall be specified by statute’. 23 The Constitution of 1997 also specifies that a bill to amend it may be submitted by the following: at least one-fifth of the statutory number of Deputies; the Senate; or the President of the Republic (Art 235(1)). Amendments shall be made by means of a statute adopted by the Sejm and, thereafter, in the same wording by the Senate within a period of 60 days (Art 235(2)). The first reading of a bill to amend the Constitution of 1997 may take place no sooner than 30 days after the submission of the bill to the Sejm (Art 235(3)).

546  Dariusz Adamski Furthermore, while the provisions on amending the Constitution of 1997 do not explicitly mention the possibility of holding a nationwide referendum, they do not preclude it either. The Constitution includes a provision according to which ‘a nationwide referendum may be held in respect of matters of particular importance to the State’ (Article 125(1)). Classifying a particular issue as a ‘matter of particular importance’ remains in the discretionary power of the body in charge of ordering the vote, for no institution is in a position to challenge its legality.24 In any case, though, a constitutional amendment intended to allow for a currency changeover certainly qualifies as a ‘matter of particular importance’. Because Polish accession to the eurozone is rather unlikely in the foreseeable future, the practically important constitutional obstacles to further integration of the eurozone should be assessed from the standpoint of the country’s ‘EMU membership with a derogation’ status. Such obstacles vary, depending on whether: 1) further integration scheme is based on a separate integrational agreement, or pursued within the existing powers conferred on the EU (including a Treaty amendment); and 2) it would encompass only the eurozone countries or all EU countries. In the scenario of an integration scheme based on a separate integrational agreement, the Polish constitutional modalities of the ratification process would act as potentially the most significant impediment to such schemes. The Constitution of 1997 provides for three ratification schemes: the small ratification, the big ratification and the ratification according to the integration clause. The small ratification is a default procedure in which the president ratifies international agreements submitted by the prime minister (Article 89(2) Constitution). The prime minister is obliged only to inform the Sejm of the intention to make such a submission. The alternative of a ‘big ratification’ requires a previous consent granted by the parliament if the given international agreement refers to the areas enumerated in the Constitution of 1997 (Article 89(1)). These areas cover, among others,25 the membership of international organisations. Hence the big ratification process should by default apply to all international agreements related to the Polish participation in the EU. The only exception to this rule is the specific situation when the international agreement in question delegates powers of the Polish state to the EU (or another international organisation). The ratification process of such an agreement is governed by the integration clause of Article 90 Constitution of 1997.26 According to its Sec 1, ‘the Republic of Poland may, by virtue of international agreements, delegate to an international organisation or international institution the competence of organs of State authority in relation to certain matters’. To do so, the Constitution of 1997 requires the majorities of two-thirds in both chambers of the Polish Parliament (Article 90(2)). The decision must be taken in the presence of at least half of the statutory number of their members (Id). It is worth highlighting that the abovementioned procedure requires the

24 See also Bogumił Naleziński, ‘Komentarz do Art 125’ in M Safjan and L Bosek (eds), Konstytucja RP. Tom II. Komentarz do art. 87–243 (Warsaw, C H Beck, 2016) 551, 557–8. 25 Others are peace, alliances, political or military treaties; freedoms, rights or obligations of citizens, as specified in the Constitution; considerable financial responsibilities imposed on the state; matters regulated by statute or those in respect of which the Constitution of 1997 requires the form of a statute. 26 For a broader discussion of this clause, in the context of the Polish participation in the EU, see M Szpunar, Komentarz do Art 90 in M Safjan and L Bosek (eds), Konstytucja RP. Tom II. Komentarz do art. 87–243 (Warsaw, C H Beck, 2016) 118; Cezary Mik, Przekazanie kompetencji przez Rzeczpospolitą Polską na rzecz Unii Europejskiej i jego następstwa prawne (uwagi na tle Art 90 ust. 1 Konstytucji) in C Mik (ed), Konstytucja Rzeczypospolitej Polskiej z 1997 roku a członkostwo Polski w Unii Europejskiej (Toruń, Tow. Nauk. Organizacji i Kierownictwa. Dom Organizatora, 1999) 145.

Poland  547 same majority in the lower chamber as does a constitutional amendment. Differently to this procedure, however, a constitutional amendment requires a lower majority in the upper chamber (an absolute majority instead of the supermajority of two-thirds required by to the integration clause). The consent for ratification of such an agreement may, under certain conditions, also be granted in a nationwide referendum. It should be indicated in this context that, according to the Constitution, the right to order a nationwide referendum shall be vested in the Sejm, to be taken by an absolute majority of votes in the presence of at least half of the statutory number of Deputies, or in the President of the Republic with the consent of the Senate given by an absolute majority vote taken in the presence of at least half of the statutory number of Senators (Article 125(2)).

The referendum will be binding if more than half of the number of those having the right to vote has participated in it (Article 125(3) Constitution). Inferring from past experiences of the eurozone’s reformatory endeavours, any further integration of the EMU – based on an international agreement and entailing a transfer of additional state powers from the national level to the supranational level – would be restricted in practice to eurozone countries, even if all the EU countries countersigned the agreement. The question which stems from such a setup for the Polish constitutional system is whether the related upward transfer of powers might apply to Poland as well or not. A ‘yes’ answer to this question requires ratification following the integration clause procedure. Otherwise, the big ratification suffices. A positive answer would be correct if Poland were bound by any actual obligation to join the eurozone because then a direct link would exist between the integration scheme and the transfer of national sovereign powers from the national to the international organisation. The same, of course, would apply if Poland, regardless of its EMU derogation status, voluntarily transferred additional state powers to an international organisation upon such an international agreement. However, considering that future EMU reforms substantively affecting the countries with a derogation are unlikely, and no obligation to join the single currency area by such countries exists, the big ratification – with its less demanding majorities in the parliament – should apply to the ratification process of any foreseeable international agreement intended to reform the eurozone, as long – again – as its competence-transferring provisions are restricted to the single currency area countries. Such a reading of the Constitution of 1997 facilitates Polish ratifications of international agreements intended to strengthen the eurozone while maintaining the Polish disengaged status of an EMU country with a derogation. Potential obstacles to further EMU integration, stemming from the Polish constitutional system, look entirely different if an integration scheme is accomplished within the powers already conferred on the EU. In such a scenario no ratification requirements stemming from the Constitution of 1997 might be relevant, because the integration scheme is pursued within the already ratified EU Treaties. The question of whether such a new scheme remains within the powers conferred on the EU might then surface. It may be raised as according to the 2005 Accession Treaty decision of the Constitutional Tribunal, Member States retain the right to assess whether Community (Union) legislative bodies, when issuing a specific act (legal provision), acted within the framework of the conferred powers and whether they exercised their powers in accordance with the principles of subsidiarity and proportionality. If this framework is overstepped, the acts (legal provisions) issued outside of it are not covered by the principle of primacy of Community law.27



27 Decision

of the Constitutional Tribunal of 11 May 2005, Case K 18/04, Sec III.10.2.

548  Dariusz Adamski In the 2005 Accession Treaty decision, the Constitutional Tribunal did not further elaborate on this particular statement, in essence using it as an argument why the preliminary reference procedure complies with the Polish Constitution. Nor has it done so ever since. It may be expected, however, that it would not recklessly endeavour such judicial scrutiny of EU measures without first filling a preliminary reference to the CJEU. It is, however, more probable that the Tribunal might find domestic measures implementing a contested EU act unconstitutional without adjudicating on the act directly. This is precisely how the Constitutional Tribunal acted in the 2005 European Arrest Warrant case.28 Also, an assessment of integration measures pursued within the powers already conferred on the EU from the perspective of the Constitution of 1997 must heed that the vast majority of such EMU integration tools proposed in recent years are intended to apply to the eurozone countries only.29 This aspect impacts on the quoted statement of the 2005 Accession Treaty decision, because the primacy of the measures restricted to the group of countries to which Poland does not belong is irrelevant from the perspective of the Polish domestic system. Their practical effects are disconnected from this system by design, as long as Poland remains outside the eurozone. The last situation worth mentioning in the context of domestic constitutional obstacles to EMU related integration within the already existing system of the primary EU law is the specific situation when the integration scheme is designed for the eurozone countries only, but accessed by Poland pursuant to its separate opt-in decision. The conceivable, but highly hypothetical, decision to join the banking union by Poland while remaining outside the single currency area is the most significant EMU related example.30 In principle, any opt-in decision could undergo a constitutional review in Poland, in line with the abovementioned proviso of the 2005 Constitutional Tribunal’s Accession Treaty judgment. In such a situation, the government would be obliged to consult parliament31 on its intention to enter into a close cooperation with the ECB.32 Furthermore, an absolute parliamentary majority would be necessary to align domestic legislation governing the area covered by the opt-in, like micro-prudential banking regulation, with the more integrated setup.

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law Since its accession to the EU, Poland has only been subject to very soft governance processes within the economic node of the EMU, with no actual implications for national constitutional rules or practices. It also witnessed the sovereign debt crisis – the period when new EMU related instruments were adopted – as a bystander. Its status of an EMU country with a derogation left 28 Decision of the Constitutional Tribunal of 27 April 2005, Case P 1/05. 29 For instance, European Commission, COM(2017)827, Proposal for a Council Regulation on the establishment of the European Monetary Fund. 30 Another example is the opt-in mechanism envisaged by European Commission, COM(2017)824, Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States Brussels. 31 Ustawa z dnia 8 października 2010 r. o współpracy Rady Ministrów z Sejmem i Senatem w sprawach związanych z członkostwem Rzeczypospolitej Polskiej w Unii Europejskiej, Dz U 2010 nr 213 poz 1395, Arts 9 and 10. 32 Pursuant to Art 7 Council Regulation 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, OJ L 287, 29 October 2013, p 63–89, and decision of the European Central Bank of 31 January 2014 on the close cooperation with the competent national authorities of participating Member States whose currency is not the euro (ECB/2014/5).

Poland  549 it outside the discussions on the distribution of the financial burden within the financial rescue schemes, like the European Financial Stability Facility and the European Stability Mechanism (ESM). Nor has Poland been affected by the debates on the evolving role of the Eurosystem, the ECB, and the banking union. However, two reforms of the eurozone introduced during its crisis required constitutionally relevant actions by the Polish lawmakers. The first was related to the ratification of the European Council Decision of 25 March 2011 amending Article 136 TFEU (the Treaty amendment).33 The other referred to the ratification of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG).34 The Treaty amendment enacted by the European Council Decision of 25 March 2011 is located in the chapter of the TFEU entitled ‘Provisions specific to Member States whose currency is the euro’. It does not aim to delegate more powers to the EU, but – instead – enshrines the powers of the member states to establish a balance of payments assistance funds, like the ESM.35 The specific character of the European Council’s decision, and the position of Poland as an EMU country with a derogation, raised the question of how this amendment should be ratified in Poland, and in particular, whether the procedure envisaged in the integration clause would be necessary. The Polish constitutional debate essentially was whether the Treaty amendment could be ratified by a big ratification, or whether it required the supermajorities in the parliament prescribed by the integration clause. The question was essentially political because the parliamentary pro-European majority of the time was enough to pass the ratification bill in the first of the two scenarios, but it required the support of some of the Eurosceptic MPs in the second. The opposition MPs claiming that the integration clause of Article 90 Constitution of 1997 is the proper constitutional basis for the ratification argued that the amendment would delegate new powers to the EU by anchoring large scale eurozone rescue assistance schemes in EU law.36 They also took it for granted that EMU countries with derogations are obliged to enter the eurozone and posited that the adoption of the single currency inevitably entails their participation in the ESM. Consequently, the Treaty amendment would delegate to the EU new sovereign powers in respect of the EMU countries with a derogation as well, while these powers betoken potentially substantial financial and political consequences. Such an argument was irreconcilable with Article 48(6) TEU, on the basis of which the amendment decision was adopted, as this provision explicitly requires that ‘the decision referred to in the second subparagraph shall not increase the competences conferred on the Union in the Treaties’. The MPs espousing it retorted, however, that the European Council decision infringed the Treaty as well.

33 Art 1 European Council Decision 2011/199/EU of 25 March 2011 amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro [2011] OJ L 91. 34 See also Paul Craig, ‘The Stability, Coordination and Governance Treaty: Principle, Politics and Pragmatism’ (2012) 37 European Law Review, 231; Leonard Besselink, and Jan Herman Reestman, ‘The Fiscal Compact and the European constitutions: ‘Europe speaking German’ (2012) 8 European Constitutional Law Review, 1. 35 According to new Art 136(3) TFEU ‘the Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality’. 36 See the explanation accompanying the draft resolution of the Sejm on the amendment of Art 136 Treaty on the Functioning of the European Union regarding the stability mechanism for the countries the currency of which is the euro (Pol. Poselski projekt uchwały w sprawie trybu wyrażenia zgody na ratyfikację decyzji Rady Europejskiej nr 2011/199/UE z dnia 25 marca 2011 r. w sprawie zmiany art. 136 Traktatu o funkcjonowaniu Unii Europejskiej w odniesieniu do mechanizmu stabilności dla państw członkowskich, których walutą jest euro, druk nr 114), available (in Polish) at www.orka.sejm. gov.pl/Druki7ka.nsf/0/77C52F9F06A9D991C12579840036A63A/%24File/114.pdf.

550  Dariusz Adamski The disagreement was fuelled by contradictory legal opinions commissioned by the Polish parliament.37 It ultimately found its way to the Constitutional Tribunal, which found that applying the big ratification in this particular case complied with the Constitution.38 In other words, activating the integration clause was constitutionally unnecessary. The majority of the judges deciding the case39 opined that neither the decision of the European Council nor the Polish ratification act40 delegated any new powers ‘of organs of State authority in relation to certain matters’ as required by the integration clause of Article 90(1) Constitution. The amendment of Article 136 TFEU was intended to generally acknowledge the competences of the member states of the eurozone to establish financial stability mechanisms (Sec 105). This amendment should be differentiated from the TESM itself, which might be only one of many consequences of the Treaty amendment. Additionally, joining the eurozone is not in itself tantamount to accessing the TESM. This latter step requires an additional action of acceding to this Treaty (Sec 134). While it could be indeed expected that all the eurozone countries join the ESM, no legal requirement in this respect was established by the TESM (Sec 136). Most importantly, Poland, as a country outside the euro area, is currently not the addressee of the norm contained in this provision [Article 136(3) TFEU – author], will not participate (did not participate) in the creation of the ESM and cannot be a beneficiary of the aid it provides (Sec 239).

As the Constitutional Tribunal continued, Article 136(3) TFEU ‘also lacks the second element important from the point of view of Article 90 Sec 1 of the Constitution, which consists in indicating the field and the scope of the transfer of competence’ (Sec 240). In congruence with the theoretical stance presented in this contribution, the Tribunal disagreed with the statement that there is any legally enforceable obligation on the side of Poland to accede to the eurozone. As it emphasised, bearing in mind the dynamics of the situation in the EU, it cannot be ruled out that in the future the conditions for joining the euro area may change. Expressing consent to the ratification of the Council’s decision in the mode of Article 90 of the Constitution could be interpreted as a recognition that there was a transfer of competence and consent to the ‘future’ unspecified terms of this accession. This would create a risk of a ‘blanket consent’ and doubts as to whether there would be grounds for Poland’s additional declaration regarding the accession to the TESM when joining the euro area (Sec 253).

Finally, the Constitutional Tribunal indicated that it is not authorised to decide upon the validity of EU acts (Sec 287), highlighting, nonetheless, that in the Pringle case41 the CJEU considered Article 48(6) TEU to be the proper legal basis for the amendment decision (Sec 289). The other reform relevant for the EMU and agreed during the sovereign debt crisis – the TSCG signed in early 2012 – created ultimately a similar debate on the proper ratification process. This

37 Three of them implied that the ratification should comply with the integration clause, while two concluded that the big ratification process would suffice: Opinie w sprawie Decyzji Rady Europejskiej z dnia 16–17 grudnia 2010 r. dotyczącej zmiany art 136 Traktatu o funkcjonowaniu Unii Europejskiej, w szczególności procedury jej stanowienia w UE oraz procedury jej ratyfikacji, Przegląd Sejmowy No 2/2012, 147–76; their summaries and further expert opinions were published in Przegląd Sejmowy No 3/2012, 177–215. 38 Case K 33/12, decision of 26 June 2013, available (in Polish) at www.ipo.trybunal.gov.pl/ipo/view/sprawa.xhtml?&p okaz=dokumenty&sygnatura=K%2033/12. 39 Five out of the 13 judges deciding the case disagreed, arguing that the procedure of the integration clause was indispensable. 40 Ustawa z dnia 11 maja 2012 r. o ratyfikacji decyzji Rady Europejskiej 2011/199/UE z dnia 25 marca 2011 r. w sprawie zmiany art. 136 Traktatu o funkcjonowaniu Unii Europejskiej w odniesieniu do mechanizmu stabilności dla państw członkowskich, których walutą jest euro (Dz U poz 748). 41 Case C-370/12, Pringle, ECLI:EU:C:2012:756.

Poland  551 Treaty (Article 14) has given the countries outside the eurozone (except for the UK and Czech Republic, which did not sign it) a choice between accepting all its provisions, including the Fiscal Compact (Title III of the TSCG) intended to reinforce EU rules on fiscal coordination, or only its two provisions (Articles 12 and 13) brought together in Title V ‘Governance of the Euro Area’. Unlike Bulgaria, Denmark and Romania, which chose the first of the two alternatives, Poland – like Sweden and Hungary – preferred the other. In consequence, the Treaty merely authorises Poland to participate in euro summits (formalised by the TSCG) restricting this attendance to when the summit’s agenda deals with competitiveness for the Contracting Parties, the modification of the global architecture of the euro area and the fundamental rules that will apply to it in the future, as well as, when appropriate and at least once a year, in discussions on specific issues of implementation of this Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (Article 12(3) TSCG).

Considering the minimal impact of the TSCG on Poland, originally the Polish government intended to endorse it by a small ratification.42 Ultimately, however, the Treaty underwent a big ratification.43 Similarly to the ratification of the amendment to the TFEU, and on analogous grounds, this ratification path attracted criticisms from the opposition claiming that, while currently the Treaty may not delegate any new powers to any international organisation, the eventual accession of Poland to the eurozone will automatically entail such a delegation, for it will leave Poland no choice but to apply the TSCG in its entirety. The case again reached the Constitutional Tribunal, but this time it has never been decided in substance. Formal considerations have made the case inadmissible on formal grounds three times – the last time due to the internal struggle in the Constitutional Tribunal induced by the political assault on it after the general elections of 2015.44

V.  Resulting Relationship between EMU Related Law and National Law As this chapter has argued so far, the relationship between EMU related law and the Polish constitutional system is extremely tenuous if existing at all. The reasons for it are purely political and economic. Fitting into a broader pattern covering the Czech Republic and Hungary (and – to a lesser extent – also Denmark) as well, the Polish society was very supportive of joining the eurozone when it was admitted to the EU.45 Its approach merged with the mainstream belief prevailing at 42 Newsweek, ‘Ratyfikacja paktu fiskalnego bez zgody Sejmu. Tak chce Tusk’, 2 March 2012, available at www.newsweek. pl/polska/ratyfikacja-paktu-fiskalnego-bez-zgody-sejmu--tak-chce-tusk,88993,1,1.html. 43 Ustawa z dnia 20 lutego 2013 r. o ratyfikacji Traktatu o stabilności, koordynacji i zarządzaniu w Unii Gospodarczej i Walutowej pomiędzy Królestwem Belgii, Republiką Bułgarii, Królestwem Danii, Republiką Federalną Niemiec, Republiką Estońską, Irlandią, Republiką Grecką, Królestwem Hiszpanii, Republiką Francuską, Republiką Włoską, Republiką Cypryjską, Republiką Łotewską, Republiką Litewską, Wielkim Księstwem Luksemburga, Węgrami, Maltą, Królestwem Niderlandów, Republiką Austrii, Rzecząpospolitą Polską, Republiką Portugalską, Rumunią, Republiką Słowenii, Republiką Słowacką, Republiką Finlandii i Królestwem Szwecji, sporządzonego w Brukseli dnia 2 marca 2012 r. (Dz U poz 283). 44 Case K 11/13, orders of 21 May 2013, 13 January 2015 and 8 June 2016, available (in Polish) from www.ipo.trybunal. gov.pl/ipo/view/sprawa.xhtml?&pokaz=dokumenty&sygnatura=K%2011/13. 45 A Eurobarometer survey conducted soon after the 2004 accession showed that 65% of the Polish respondents were in favour of the statement: ‘European Monetary Union with one single currency, the euro’, while 26% were against it. The Polish society was, therefore, more favourable to the adoption of the euro than the EU average (63% for and 31% against) at the time: Standard Eurobarometer 62, 10–11/2004, Annex, Q36, p 182, available at www.ec.europa.eu/commfrontoffice/publicopinion/index.cfm/Survey/getSurveyDetail/instruments/STANDARD/surveyKy/455.

552  Dariusz Adamski that time, according to which joining the single currency was considered a precondition for reaping full benefits of the internal market and the economic integration more generally.46 However, primarily for symbolic reasons related to conceiving coins and banknotes as manifestations of the national sovereignty, the Eurosceptic coalition governing Poland between 2005 and 2007 did not put meeting the convergence criteria as its priority. The resilience with which the Polish economy withheld the subsequent Great Recession and the eurozone crisis has dramatically altered popular sentiments towards the euro in subsequent years. In spring 2018, for instance, the absolute majority of Polish respondents disapproved the single currency,47 apparently realising that the advantages stemming from adopting it may be overwhelmed by the concomitant costs and risks. First, against a paradigmatic belief of the ‘One Market, One Money’ report,48 based on the assumption that only countries that adopted the single currency can reap full benefits of the internal market, the Central and Eastern European countries of the EU outside the eurozone (especially Poland, Czech Republic, Hungary and Romania) emerged as important elements of global production chains, with their unemployment hitting rock bottom as a consequence.49 During the recent decade, they all have essentially managed to couple floating exchange rates with external competitiveness. Second, the experiences of the Great Recession made it quite clear that monetary policy has an important role to play as a macroeconomic cushion when an economy is hit by a serious negative asymmetric shock. This aspect was ignored during the Maastricht process because it was hoped then that the single currency area, when juxtaposed with the internal market, would be entirely absolved of asymmetric shocks. Third, even procyclical fiscal policies nurtured for many years by consecutive Polish governments have made a case for maintaining the złoty as the national currency. This procyclicality, coupled with a less flexible national economy than it was a decade ago, threatens a monetary crisis when the next global slowdown affects Poland. This country’s monetary sovereignty can be expected to deepen the initial crisis because a national currency of a single EU country is a much easier object for a speculative attack than is the euro. Although, in reverse, it should make the subsequent recovery faster and more convincing than it could be the case had Poland joined the single currency. Irrespective of the advantages of remaining outside the eurozone, the pro-European Polish government in office during the sovereign debt crisis supported reforms of the single currency area, realising that preventing the crisis was in the economic interest of Poland as well. Still, its incentives were a bit contradictory, because at the same time it was quite obvious that further integration of the eurozone would move the countries outside of it further away from the EU’s decision-making core. 46 For details of such a depiction see eg Kenneth Dyson (ed), Enlarging the Euro Area: External Empowerment and Domestic Transformation in East Central Europe (Oxford, Oxford University Press, 2006); Chris Mulhearn and Howard Vane, The Euro: Its Origins, Development and Prospects (Cheltenham, Edward Elgar, 2008) Ch 6. 47 In the spring 2018 edition of the Standard Eurobarometer, 34% of the Polish respondents were in favour of the statement: ‘European Monetary Union with one single currency, the euro’, while 58% were against it. This opinion was putting the Polish society among some of the most Eurosceptic European societies (lower support for this statement prevailed only in Czech Republic, Sweden, the UK and Denmark): Standard Eurobarometer 89, spring 2018, Annex, QA16.1, T96, available from ec.europa.eu/commfrontoffice/publicopinion/index.cfm/Survey/getSurveyDetail/instruments/STANDARD/surveyKy/2180, accessed 29 March 2019. 48 European Commission, One Market, One Money. An evaluation of the potential benefits and costs of forming an economic and monetary union, European Economy No 44, October 1990. 49 According to the most recent statistics available when this contribution is written (for December 2018) Czech Republic had the lowest level of unemployment in the EU (2.1%), Poland the third lowest (3.5%), Hungary – the fifth lowest (3.7%) and Romania – the seventh lowest (3.8%).

Poland  553 Since the 2015 general elections, Polish aspirations to remain in the core of the European integration have evaporated. The Eurosceptic government of Poland elected back then placed itself at odds with the European values and against the vast majority of EU countries, isolating itself from other members of the club. Its rhetoric regarding future integration within the EU (including the EMU) has become belligerent and intransigent. Paradoxically, however, by rendering the Polish accession to the eurozone contingent on achieving substantive economic convergence (as measured by the GDP per capita) with its richer economies, this government has founded its position on the premises corresponding with the venerable ‘coronation theory’, prior to the Maastricht process dominating in German economic circles.50 What distinguishes this theory from the stance of the Polish government is that the former was essentially open to further economic integration (in the areas other than monetary policy), while the latter has been obdurately dismissive towards it. Even if ultimately the EMU was founded on the opposite ‘monetarist theory’, the sovereign debt crisis and the subsequently growing divergences between the economies of the eurozone have largely confirmed the economic and political rationality of the coronation theory (and, by extension, the approach of the Polish government). The fact that European policymakers, too, have realised the merits of the coronation theory, rejected for political reasons in the late 1980s, may explain why neither Poland nor any other country with a derogation has become subject to stronger political pressure from European institutions to strive harder for admission to the eurozone. As explained earlier, there are serious political and economic arguments justifying no specific Treaty obligation to do so. In countries – like Poland – where the number of supporters of the single currency is low, a government pressing for accession would risk a serious political backlash. In the constitutional setup which requires a supermajority in the Sejm for the necessary constitutional changes and envisages (very likely in practice) the possibility of a national referendum as a precondition for such an extension of the integration process, any prospect of Poland participating in closer integration of the eurozone is thus destined to remain illusory for any predictable future. Ultimately, therefore, Poland is poised to maintain its EMU membership with a derogation status, and its constitutional system can be expected to remain mostly disconnected from the EMU setup. Polish governments can either take satisfaction from future crises of the single currency – when they are anti-European – or manifest benevolent abstention – if pro-European forces return to power.

References B Banaszak, Konstytucja Rzeczypospolitej Polskiej. Komentarz, 2nd edn (Warsaw, C H Beck, 2012). T Beukers and M van der Sluis, ‘Differentiated Integration from the Perspective of Non-Euro Area Member States’ in T Beukers, B De Witte and C Kilpatrick (eds), Constitutional Change through Euro-Crisis Law (Cambridge, Cambridge University Press, 2017) 143.

50 The top honcho of the PiS party – Jarosław Kaczyński – was reported in early 2017 saying that the Polish accession to the eurozone would be advisable when the Polish GDP per capita reaches 85% of its German equivalent, which – if the current growth dynamics is maintained – might happen in the last decade of the 21st century: in Zuzanna Dąbrowska, Michał Szułdrzyński and Jarosław Kaczyński: Unia Europejska została zdominowana przez jedną osobę, Rzeczpospolita, 14 March 2017, available at www.rp.pl/Rzecz-o-polityce/303149852-Jaroslaw-Kaczynski-Unia-Europej ska-zostala-zdominowana-przez-jedna-osobe.html, accessed 29 March 2019. According to the main tenet of the coronation theory ‘monetary union would be the final moment of a process of economic and political union’: Kenneth Dyson, Germany and the Euro: Redefining EMU, Handling Paradox and Managing Uncertainty and Contingency, in Kenneth Dyson (ed), European States and the Euro: Europeanization, Variation, and Convergence (Oxford, Oxford University Press, 2002) 173, 178.

554  Dariusz Adamski L Besselink and J-H Reestman, ‘The Fiscal Compact and the European constitutions: ‘Europe speaking German’’ (2012) 8 European Constitutional Law Review, 1. P Craig, ‘The Stability, Coordination and Governance Treaty: Principle, Politics and Pragmatism’ (2012) 37 European Law Review, 231. K Dyson, ‘Germany and the Euro: Redefining EMU, Handling Paradox and Managing Uncertainty and Contingency’ in K Dyson (ed), European States and the Euro: Europeanization, Variation, and Convergence (Oxford, Oxford University Press, 2002) 173. K Dyson (ed), Enlarging the Euro Area: External Empowerment and Domestic Transformation in East Central Europe (Oxford, Oxford University Press, 2006). A Estella, Legal Foundations of EU Economic Governance (Cambridge, Cambridge University Press, 2018). A Jakuszewicz, ‘Wykładnia konstytucji jako proces konkretyzacji’ (2014) 17 Przegląd Prawa Konstytucyjnego, 73. J-V Louis, The Economic and Monetary Union: Law and Institutions (2004) 41 Common Market Law Review, 575. C Mik, Przekazanie kompetencji przez Rzeczpospolitą Polską na rzecz Unii Europejskiej i jego następstwa prawne (uwagi na tle art. 90 ust. 1 Konstytucji)’ in C Mik (ed), Konstytucja Rzeczypospolitej Polskiej z 1997 roku a członkostwo Polski w Unii Europejskiej (Toruń, Tow. Nauk. Organizacji i Kierownictwa. Dom Organizatora, 1999) 145. C Mulhearn and H Vane, The Euro: Its Origins, Development and Prospects (Cheltenham, Edward Elgar, 2008). B Naleziński, ‘Komentarz do Art. 125’ in M Safjan and L Bosek (eds), Konstytucja RP. Tom II. Komentarz do art. 87–243 (Warsaw, C H Beck, 2016) 551. M Pach, Specyfika wykładni konstytucji w konstytucyjnym państwie prawa na przykładzie Konstytucji RP z 2 kwietnia 1997 r. in M Jabłoński, J Kaczor, M Pichlak (eds) Prawo i polityka w sferze publicznej. Perspektywa wewnętrzna (Wrocław, E-Monografie WPAE, 2017) 13. W Sadurski, ‘How Democracy Dies (in Poland): A Case Study of Anti-Constitutional Populist Backsliding’ (2018) 18/01 Sydney Law School Research Paper. M Smolak (ed) Wykładnia konstytucji. Aktualne problemy i tendencje (Warsaw, Wolters Kluwer, 2016). M Szpunar, ‘Komentarz do Art. 90’ in M Safjan and L Bosek (eds), Konstytucja RP. Tom II. Komentarz do art. 87–243 (Warsaw, C H Beck, 2016) 118.

Legal Sources ustawa z dnia 8 października 2010 r. o współpracy Rady Ministrów z Sejmem i Senatem w sprawach związanych z członkostwem Rzeczypospolitej Polskiej w Unii Europejskiej, Dz U 2010 nr 213 poz 1395. ustawa z dnia 20 lutego 2013 r. o ratyfikacji Traktatu o stabilności, koordynacji i zarządzaniu w Unii Gospodarczej i Walutowej pomiędzy Królestwem Belgii, Republiką Bułgarii, Królestwem Danii, Republiką Federalną Niemiec, Republiką Estońską, Irlandią, Republiką Grecką, Królestwem Hiszpanii, Republiką Francuską, Republiką Włoską, Republiką Cypryjską, Republiką Łotewską, Republiką Litewską, Wielkim Księstwem Luksemburga, Węgrami, Maltą, Królestwem Niderlandów, Republiką Austrii, Rzecząpospolitą Polską, Republiką Portugalską, Rumunią, Republiką Słowenii, Republiką Słowacką, Republiką Finlandii i Królestwem Szwecji, sporządzonego w Brukseli dnia 2 marca 2012 r. (Dz U poz 283). Treaty between the Kingdom of Belgium, the Kingdom of Denmark, the Federal Republic of Germany, the Hellenic Republic, the Kingdom of Spain, the French Republic, Ireland, the Italian Republic, the Grand Duchy of Luxembourg, the Kingdom of the Netherlands, the Republic of Austria, the Portuguese Republic, the Republic of Finland, the Kingdom of Sweden, the United Kingdom of Great Britain and Northern Ireland (Member States of the European Union) and the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia, the Slovak Republic, concerning the accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic to the European Union, OJ L 236, 23 September 2003, p 17–930. Konstytucja Rzeczypospolitej Polskiej z dnia 2 kwietnia 1997 r. uchwalona przez Zgromadzenie Narodowe w dniu 2 kwietnia 1997 r., przyjęta przez Naród w referendum konstytucyjnym w dniu 25 maja 1997 r., podpisana przez Prezydenta Rzeczypospolitej Polskiej w dniu 16 lipca 1997 r., Dz U 1997 nr 78 poz 483.

23 Portugal ANA MARIA GUERRA MARTINS, JOANA DE SOUSA LOUREIRO

Abstract: This chapter focuses on the relationship between the Portuguese constitutional system and the European EMU law. The first section introduces the reader to the current Portuguese Constitution and follows the constitutional evolution as regards to the political system, the way the judiciary scrutinises economic issues and the attitude vis-à-vis EU law. The second section, concerning constitutional foundations of the EMU membership and closely related instruments, underlines the fact that there are no specific constitutional provisions on these matters. Therefore, EMU membership must rely on the constitutional provisions on EU membership. Rules adopted outside the EU legal order mainly follow constitutional provisions on general international law. The third section deals with the constitutional obstacles to EMU related measures, drawing particular attention to the Portuguese Constitutional Court’s case law on austerity measures. In addition, we discuss the feasibility of the EMU reform from the perspective of the Portuguese constitutional system and the point of view of some political actors. The fourth section relates to Portuguese constitutional rules and practices implementing EMU measures, with special emphasis on the participation of the parliament and the government. Lastly, the fifth section concerns the impact of EMU law on Portuguese law. Key words: Portuguese Constitution, EMU, Reform, Constitutional obstacles to EMU law, Portuguese case law on austerity measures, implementation of EMU law in Portugal.

I.  Main Characteristics of the National Constitutional System, and Constitutional Culture A.  Portuguese Constitutional System, Including the Judiciary i.  The Current Constitution The current Constitution of the Portuguese Republic (CPR) was approved on 2 April 1976,1 and mainly a result of the Revolution (25 April 1974). Elected on 25 April 1975, the Constituent Assembly was exposed to huge political pressure.2,3 1 An English version of the Constitution can be consulted at www.parlamento.pt. On the drafting of the Constitution see Jorge Miranda, Manual de Direito Constitucional, I, 2,10th edn (Coimbra, Coimbra Editora, 2014), 101ff; Jorge Miranda ‘Decisões políticas: aprovação, abstenção e rejeição no momento constituinte de 1976’ (2000) 46 20 anos da Constituição de 1976 – Studia Iuridica, 177ff; Gomes Canotilho, Vital Moreira, Fundamentos da Constituição (Coimbra, Coimbra editora, 1991), 9ff; Francisco Lucas Pires, Teoria da Constituição de 1976. A transição dualista (Coimbra, 1988), 125ff; Gomes Canotilho, Direito Constitucional e Teoria da Constituição, 7th edn (Coimbra, Almedina, 2003), 200–06. 2 See, above all, Jorge Miranda, Da Revolução à Constituição (Cascais, Principia, 2015), 223ff.

556  Ana Maria Guerra Martins, Joana de Sousa Loureiro This Constitution has so far undergone up to seven revisions.4 The first version of the CPR did not include any reference to European integration for two reasons. First, the accession to the EC was not predictable at that time. Second, all energy was concentrated on affirming sovereignty at the external level and on building a state that respects democracy, the rule of law and fundamental rights. Furthermore, the socialist economic trend of the CPR also made it difficult to conceive eventual accession to the EC.5,6

ii.  Political System The constitutional regime of Portugal is ‘a sovereign Republic, based on the dignity of the human person and the will of the people and committed to building a free, just and solidary society’ (Article 1 CPR). That means human beings are the priority of the state, above the economic and the political power’s organisation of the state.7 The CPR is a democratic state based on the rule of law, the sovereignty of the people, plural democratic expression and political organisation, respect for and the guarantee of the effective implementation of the fundamental rights and freedoms, and the separation and interdependence of powers, to achieve economic, social and cultural democracy and deepen participatory democracy (Article 2 CPR). The structure of the state is unitary with autonomous regions (Article 6(2) CPR).8 The political system is based on a separation of effective – positive and negative – powers between the president, the parliament and the government, each of the three possessing equal democratic legitimacy.9 The majority of the Portuguese doctrine classifies it as a semi-presidential system.10 Throughout the years of application of the CPR, the role played by the three main 3 It especially came from the Communist Party, which tried to conquer in the streets the power it had failed to win in the ballots. 4 See Constitutional Laws No 1/1982, No 1/1989, No 1/1992, No 1/1997, No 1/2001, No 1/2004 and No 1/2005. 5 On the terms of this discussion, supporting the thesis of the compatibility of the CPR original version with the accession to the European Communities, see Jorge Miranda ‘O Direito Constitucional Português da Integração Europeia – Alguns Aspectos’, (2001) Nos 25 Anos da Constituição da República Portuguesa de 1976, 17ff. 6 For further reading, see Ana Maria Guerra Martins, ‘Portugal’ in Stefan Griller et al (eds), National Constitutions and EU Integration (Oxford, Hart Publishing, 2020 forthcoming). 7 See especially Paulo Otero Direito Constitucional Português – Identidade Constitucional, vol I (Coimbra, Almedina, 2010), 34ff. 8 On the unitary structure of the Portuguese State see especially: Jorge Miranda, Manual de Direito Constitucional III, 6th edn (Coimbra, Coimbra Editora, 2010), 301–29; Canotilho, Direito Constitucional, 359–62. 9 See generally Paulo Otero, Direito Constitucional Português – Organização do Poder Político vol II, (Coimbra, Almedina, 2010) 209–80; Canotilho, Direito Constitucional, 619ff; Gomes Canotilho, Vital Moreira, Os poderes do Presidente da República (Coimbra, Coimbra Editora 1991) 30. 10 See, for example, Miranda, Manual I, 2, 10th edn, 194–99, 251–62; Jorge Reis Novais, Semipresidencialismo, Teoria do sistema de governos semipresidencial I (Coimbra, Almedina, 2007), 232ff; Carlos Blanco de Morais, ‘As metamorfoses do semipresidencialismo português’ (2016) 22 Revista Jurídica, 141ff; Vitalino Canas, ‘Sistema semi-presidencial’ (1998) 1st Suplement Dicionário Jurídico da Administração Pública, 490ff; Marcelo Rebelo de Sousa, O Sistema de Governo Português, 4th edn (Lisbon, AAFDL 1992) 14, 71; Pires, Teoria, 226ff; Ana Maria Guerra Martins, ‘The Portuguese Semi-Presidential System – About Law “In the Books” and Law “In Action”’ (2006) 2, 1 European Constitutional Law Review, 96ff. Against, Gomes Canotilho, who qualifies the Portuguese system as parliamentary-presidential mix (Direito Constitucional, 598–605). Paulo Otero qualifies the Portuguese political system as a parliamentary rationalised system (O poder de substituição em Direito Administrativo II (Lisbon, Lex 1995) 792 and Direito Constitucional, 486ff). Adriano Moreira supports the idea of a prime-minister presidential system (‘O regime: presidencialismo do Primeiro-Ministro’ in M Baptista Coelho (coord), Portugal – O Sistema Político e Constitucional 1974/87 (Lisbon, ICSUL 1989) 31. Cristina Queiroz argues that the main feature of the semi-presidential system is the domination of the parliamentary majority by the president. She concludes that the only country in Europe that has such a system is France (‘A classificação das formas de governo. Em particular, o sistema de governo “semi-presidencial”’, Estudos em homenagem ao Prof. Doutor Armando Marques Guedes (Lisbon, Almedina 2004) 358.

Portugal  557 institutions had changed considerably. The powers of the president have been reduced while the parliamentary dimension of the system was reinforced.11,12 However, in the last two years, due to the personal characteristics of the incumbent president – Marcelo Rebelo de Sousa – and the current political conjuncture, the president has been playing a more interventionist role. The courts exercise sovereignty with the competence to administer justice in the name of the people (Article 202 CPR). They ‘are independent and subject only to the law’ (Article 203 CPR). Constitutionality and legality control is multi-shaped, and any court (including the constitutional court – PCC) shall not apply rules violating the CPR or the principles enshrined therein (Article 204 CPR).13 The PCC administers justice in matters of legal and constitutional nature (Article 221 CPR).14

B.  Significance of the Portuguese Constitution in the Legal System and Importance for the Polity The CPR plays a decisive role in the Portuguese legal system. It is a living instrument, the rules and principles of which are, on a daily basis, interpreted by the judiciary. As the CPR is the statute of the polity, it influences that polity at a large scale. The lawmaker enjoys, in many cases, a large margin of discretion.15 The CPR, like any other Constitution, has been undergoing an evolution leading to many divergences between the written words and the living Constitution.16 The constitutional judgments play a decisive role.17 The PCC contributed by concretising the norms and the principles included in the CPR in several areas. These areas include (1) the express CPR definition of fundamental rights and the ‘creation’ of implied fundamental rights, (2) the densification of the human dignity concept, (3) the clarification of some aspects of the economic organisation and political system, and (4) the interpretation of the rules and principles on the repartition of powers between the Republic and the autonomous regions.

i.  The Courts’ Role in Scrutinising Economic Issues The CPR contains many rules and principles of economic organisation (Articles 80–107). Consequently, the definition and development of pertinent Portuguese preferences must respect the CPR, including its economic, fiscal and financial rules and principles (mainly, Articles 101–07). That means that the CPR also plays an important role in the definition and development of public policies.

11 See especially Guerra Martins, ‘The Portuguese Semi-Presidential System – About Law “In the Books” and Law “In Action”’, 81–100. 12 For further developments, see Guerra Martins, ‘Portugal’. 13 On the Portuguese judicial control of constitutionality see, among many others Otero, Direito Constitucional, 409ff; Canotilho, Direito Constitucional, 657ff; Jorge Miranda, Manual de Direito Constitucional VI, 4th edn. (Coimbra, Coimbra Editora 2013), 189ff; Fernando Alves Correia, Justiça Constitucional (Coimbra, Almedina, 2016), 163ff; Carlos Blanco de Morais, Justiça Constitucional 2, 2nd edn (Coimbra, Coimbra Editora, 2011), passim. 14 On the PCC see, among many others, Otero, Direito Constitucional, 421–23; Canotilho, Direito Constitucional, 677ff; Jorge Miranda, Manual de Direito Constitucional VI, 4th edn (Coimbra, Coimbra Editora 2013), 181ff; Correia, Justiça Constitucional, 127ff. 15 See especially Paulo Otero Direito Constitucional Português – Identidade Constitucional, 173ff. 16 Otero, Direito Constitucional, 207ff. 17 Jorge Miranda, Manual de Direito Constitucional I, 2, 10th edn, 271–73.

558  Ana Maria Guerra Martins, Joana de Sousa Loureiro The Portuguese courts are competent to control economic and fiscal integration. However, they are rather reluctant in scrutinising economic issues. The exception in that regard is the PCC, which has always scrutinised them. This was recently evidenced in the so-called ‘case-law of the crisis’, in which the Court scrutinised some austerity measures during the financial, public debt and euro crises.18

ii.  The General Attitude vis-à-vis EU Law Since Portugal’s EC accession, the successive legislatures and governments have made a significant effort to respect and implement EC and, subsequently, EU law. In the beginning, the courts were much more reluctant to incorporate EU law into their decisions, but this attitude has changed in the last decade. In Portugal, the effectiveness of this system is not currently endangered. The current government and political parties are truly committed to the EU and its values mentioned in Article 2 TEU: human dignity, freedom, democracy, equality, the rule of law and respect for human rights, pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men.

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  No Specific Provisions on EMU Membership In Portugal, there are no specific constitutional provisions on EMU membership. Thus, it is based on the general clause of EU membership, ie, Article 7(6) CPR. The secondary EU law that implements the EMU, such as the Six Pack regulations, as with any other regulations, are directly applicable, and Directive 2011/85/EU was transposed into the Portuguese legal system through Law No 37/2013 of 14 June,19 that amended the Budgetary Framework Law (BFL). The Medium Term Budgetary Objective (MTO) was introduced in the Portuguese legal order by inserting the balanced budget rule in the BFL, and is included in the State Budget Law (SBL) and also in the SGP. Currently, the MTO is to reach a positive balance of 0.25 per cent of the potential GDP by 2021,20 but it is important to note that the MTO may change every year with the approval of an updated SGP. Law No 8-A/2010 of 10 May,21 approved a framework that allows the government to grant loans, carry out other active credit operations to the Member States of the eurozone and provide personal guarantees from the state to financing operations of those states, as part of the initiative to strengthen the financial stability. Article 1 of Law No 8-A/2010 gave the power to the Ministry of Finance to assume that responsibility. Two parties with parliamentary seats (Portuguese Communist Party and Green Party) voted against the approval of this law. The abovementioned 18 See below Sec III.B.2. 19 Published in Diário da República, First series, No113, of 14 June 2013. 20 See Programa de Estabilidade 2017–21 of the XXI Portuguese government, available at www.parlamento.pt. 21 Published in Diário da República, First series, No 96, of 18 May 2010. Available at www.data.dre.pt/eli/ lei/8-a/2010/05/18/p/dre/pt/html.

Portugal  559 operations shall benefit from the budgetary and financing ceilings allocated to the Financial Stability Initiative, the same limits being applicable in the case of lending or other active credit operations (Article 3 of Law No 8-A/2010). As we will see below,22 the constitutional rules and principles on international law commitments are also applicable to the EMU related instruments, such as the TSCG or the Treaty on the European Stability Mechanism (TESM).

i.  General Membership Clauses of the Constitution The so-called ‘EU clause’ is contained in Article 7(5) and (6) CPR, which states: 5. Portugal shall make every effort to reinforce the European identity and to strengthen the European states’ actions in favour of democracy, peace, economic progress and justice in the relations between peoples. 6. Subject to reciprocity and to respect for the fundamental principles of a democratic state based on the rule of law and for the principle of subsidiarity, and with a view to the achievement of the economic, social and territorial cohesion of an area of freedom, security and justice and the definition and implementation of a common external, security and defense policy, Portugal may enter into agreements for the exercise jointly, in cooperation or by the Union’s institutions, of the powers needed to construct and deepen the European Union.

The CPR also refers to EU integration in other provisions. Such provisions are (1) Articles 161(n) and 163(f) CPR23 on the pronouncement of the Assembly of the Republic (hereafter, parliament) on matters awaiting a decision by EU organs that concern the sphere of its exclusive legislative competence and the monitoring and consideration of Portugal’s participation in the process of constructing the EU, respectively; (2) Article 197(i) CPR relating to the duty of the government to submit, in good time, information concerning the process of constructing the EU to the parliament,24 (3) Article 227(1)(x) CPR on the participation of the autonomous regions in certain circumstances in the process of constructing the EU,25 and (4) Article 295 CPR on the EU treaties referenda.26 These provisions are also applied to EMU matters.27

22 See below this sec, No 3. 23 Art 163 (f) CPR was introduced by the constitutional revision of 1992 and states: ‘As laid down by law, the Assembly of the Republic has the competences to monitor and consider Portugal’s participation in the process of constructing the European Union’. 24 Art 197 (i) CPR was introduced by the constitutional revision of 1992 and reads: the government ‘for the purpose of Art 166 (f) and in good time, (has) to submit information concerning the process of constructing the European Union to the Assembly of the Republic’. 25 This provision was introduced by the constitutional revision of 1997, conferring the power of the autonomous regions ‘to participate, when matters that concern their specific interest are at stake, in the process of constructing the European Union by means of their representation in the respective regional institutions and in the delegations involved in European Union decision-making processes’. 26 Despite the existence of Art 115 CPR, which relates to the referendum, and the amendment of this provision by constitutional revision of 1997, which introduced a new para 5, allowing referenda on treaties that concerned Portugal’s participation in international organisations, there was no consensus on whether it could be a constitutional basis for a referendum on the TECE. Therefore, in last constitutional revision in 2005, which was with the exclusive aim of allowing referenda on European treaties was added Art 295 CPR, which states: ‘The provisions of Art 115(3) do not prejudice the possibility of calling and holding referenda on the approval of treaties concerning the construction and deepening of the European Union.’ In fact, taking into consideration that the TECE was signed in December 2004 and it had introduced extensive changes in the European Treaties, a strong political consensus emerged in Portugal in the sense that the TEC should be subjected to a referendum. 27 See for details, Guerra Martins ‘Portugal’.

560  Ana Maria Guerra Martins, Joana de Sousa Loureiro

ii.  Rules Governing Closely Related Instruments Outside the EU Legal Order, Especially the ESM and the Fiscal Compact Besides the EU integration, EU Member States have always cooperated in fields that have a certain link to EU law. The CPR includes a fundamental principle of ‘openness’ to international law,28 which also applies to EMU related issues regulated under international law. Likewise, the constitutional provisions on the conclusion of international treaties also apply to the EMU area.29 The CPR does not contain any rule referring either to the TESM or to the TSCG (including the Fiscal Compact, FC). Due to the budgetary content of the latter treaty, some scholars sustained that the CPR should be amended in order to accommodate that Treaty.30 The previous government also argued that, at least, the ‘golden rule’ should have been included in the CPR. The rejection of the idea by the opposition parties made the constitutional amendment procedure unfeasible because it requires a two-thirds majority of all MPs to pass. The TESM and the TSCG were passed in the parliament after being discussed on the same day. This did not contribute to a clear and deep debate on the implications of either one of them. Furthermore, the parliamentary discussion on that day was dominated by other unrelated issues, which drew much more attention from the MPs.31 Both treaties were eventually passed by two resolutions32 of the AR,33 on 13 April 2012.34 The discussion of the TSCG revolved around two main topics – convening a referendum, which was supported by the Communist Party, the Left Bloc and the Green Party, and a recommendation, sustained by the Socialist Party, to the government to propose to the other signatory states, and within the framework of the EU, the adoption of measures or the negotiation of an additional protocol to promote economic growth and employment.35 All of them were rejected by the majority that supported the government. The content of the Treaties itself was not thoroughly discussed. Both, the TESM and TSCG were ratified by the president of Republic,36 without submitting them for constitutional review. Neither of the treaties was subsequently challenged before the PCC. 28 Compare Ana Maria Guerra Martins and Miguel Prata Roque, ‘Chapter 18 – Universality and Binding Effect of Human Rights from a Portuguese Perspective’ in R Arnold (ed), The Universalism of Human Rights (Dordrecht, Springer, 2013), 307ff; Ana Maria Guerra Martins, ‘A Portuguese Perspective of the Accession on the European Union to the European Convention of Human Rights’, J Iliopoulos-Strangas, V Pereira da Silva and M Potacs (eds), The Accession of the European Union to the ECHR (Baden-Baden, Nomos, 2013), 205ff; Rui Medeiros, A Constituição Portuguesa num Contexto Global (Lisbon, UCP, 2015) 291ff. 29 For further reading see Guerra Martins ‘Portugal’. 30 Vital Moreira, ‘A CRP e a União Europeia’ in Estudos em homenagem ao Conselheiro Presidente Rui Moura Ramos’ Vol I, (Coimbra, Almedina, 2016), 898–99. 31 The issues were the discussion of law proposal 50/XII (1st), which was supposed to change the Law on the legal regime of entry, stay, exit and removal of foreigners from the national territory (Law No 23/2007, of July 4), and bills No 206/XII (1st), which approved the regime for regularisation of undocumented foreign nationals – No 25/XII (1st), which constitutes the suspensive effect of the resources provided for in the Immigration Law, and No 215/XII (1st) on the regularisation of immigrant workers and minors born in Portugal or attending the education system. 32 See www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?BID=36902. 33 The TESM was approved by Resolution No 80/2012 and the TSCG by the Resolution No 84/2012, published in Diário da República, No 117/2012, Série I, of 19 June 2012 and in Diário da República, Série I, of 3 July 2012, respectively. 34 See www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?BID=36902. 35 See Draft Resolution No 283/XII, 1.ª of 5/4/2012, available at www.parlamento.pt/ActividadeParlamentar/Paginas/ DetalheIniciativa.aspx?BID=36902. 36 The TESM was ratified by the decree of the President of the Republic No 93/2102 of 19/ June 2012, Diário da República, No 117/2012, Série I, of 19 June 2012 and the TSCG by the decree of the president of the Republic No 99/2012 of 3 July 2012, Diário da República, Série I, of 3 July 2012.

Portugal  561 The reference to the TESM and the TSCG was inserted into the new Budget Framework Law (Law No 151/2015 of 11 September 201537), which has an enhanced value, in two ways. First, under the terms of Article 106(1) CPR, the Budget Law shall be in accordance with the applicable framework law. Second, Article 4 of Law No 151/2015 expressly asserts that this Law ‘prevails over all rules establishing particular budgetary regimes not compatible with’. The new Portuguese Budget Framework Law38 is much more inspired by the treaties approved by the Member States outside the EU legal order than by the EU legal order. The CPR, thus, plays an insignificant role in that regard.

iii.  Practice and Doctrinal Debate on These Provisions In Portugal, the discussion on the EMU membership has significantly evolved. Initially, when the Delors plan launched the idea of an EMU and a single currency, it was well accepted by the Portuguese government, the opposition and the civil society in general. However, due to the peripheral character and weakness of the Portuguese economy, many politicians and economists expressed doubts that Portugal could achieve the objective of integrating the EMU at the outset.39 Taking this into account, the then president of the Republic, Mário Soares, conveyed his support for the need for real convergence between Portugal and the EU. Afterwards, the EMU was envisaged as an inevitable development of the EU, in which Portugal had to participate early-on, otherwise, it would become more difficult, if not impossible, for it to do so in the future. Therefore, the fulfilment of the convergence criteria of the Maastricht Treaty turned into a national goal, since there was at the time a very broad consensus in the political arena (except for the Communist Party and Popular Party) and in the civil society that Portugal should participate in all the advances of European integration. In the words of a former prime minister and president of the Republic, since Portugal’s EC accession on 1 January 1986, Portugal was at the forefront of deepening the European project, revealing the political will and capacity to reform and adapt to change.40 As early as 1990, Portugal committed to politically prepare its economy for the monetary union. It would be necessary to meet convergence criteria: price stability, exchange rate stability, and government spending discipline. This was a true challenge for a country that had only been in the European Union for four years.41

However, after 2010, due to the financial and public debt crises, which led to a general weakening of the economy and a clear impoverishment of the Portuguese, some started to question the EMU membership and even argued for the exit from the eurozone.42 In political circles, the Communist Party and the Left Bloc sustained the restructuring of the public debt and the exit from the eurozone. 37 Diário da República, 1st série, No 178 of 11 September 2015. This law has been twice amended, the latest by Law No 37/2018 of 7 August, Diário da República, No 151/2018 of 7 August 2018, www.data.dre.pt/eli/lei/37/2018/08/07/p/ dre/pt/html. 38 Compare www.en.parlamento.pt/Legislation/Law151_2015.pdf. 39 Francisco Torres ‘A Convergência Monetária: Portugal e a União Europeia’ (2006) Working Papers in Economics, Universidade de Aveiro, E/nº 39/2006. 40 Anibal Cavaco Silva, ‘Portugal and the Future of the European Union’ (2018) xxiv (II), The Brown Journal of Foreign Affairs, 10. 41 Cavaco Silva, ‘Portugal’, 13. 42 João Ferreira do Amaral, Porque devemos sair do euro – o divórcio necessário para tirar Portugal da crise, (Lisbon, Lua de Papel, 2013).

562  Ana Maria Guerra Martins, Joana de Sousa Loureiro

B.  Treaty Amendments on EMU Matters While the Portuguese EC accession43 and some Treaty amendments implied wide and deep changes into the CPR, the introduction of just EMU matters provoked a surgical modification. It was the third constitutional revision (1992) that adapted the CPR to the principles of the Treaty of European Union (Maastricht Treaty), including to the EMU. Apart from amendments relating to other issues,44 which are not developed in this study,45 it was necessary to prepare the adaptation of the Bank of Portugal’s powers to the institutional framework of the future EMU.46 As a result, the wording of the former Article 105 CPR (current Article 102 CPR), which read The Bank of Portugal, as the central bank, has the exclusive issuance of currency and collaborates in the execution of monetary and financial policies, according to the budgetary law, the objectives defined in the plans and the directives of the government’

turned into, The Bank of Portugal is the national central bank and shall exercise its functions as laid down by law and in accordance with the international norms by which the Portuguese state is bound.

Furthermore, Portugal tried hard to fulfil the convergence criteria in order to be a full member of the EMU and the eurozone. As Teixeira dos Santos (then Secretary of State for the Treasury and Finance and later on Minister of Finance) underlined in a conference in the University of South Carolina on 15 December 1997, The Portuguese commitment to EMU is very strong. In the last years, macroeconomic policies have been conducted aiming to fulfil the convergence criteria required to the membership of the Euro Zone. For more than three years, the escudo exchange rate has been very stable within the Exchange Rate Mechanism of the European Monetary System. In addition, the recent evolution of the relevant indicators is outstanding.47

The subsequent revisions of the CPR (1997,48 2001,49 2004,50 and 200551) did not deal with the EMU membership. In the last 12 years, the CPR has not been amended, which can be assessed as a factor of its maturity.52 As we have already pointed out, even more, recent EMU governance developments, such as the TSCG, have not led to amending the CPR. 43 On the constitutional consequences of Portugal’s accession to the EC, see, above all, António Vitorino, ‘A adesão de Portugal às Comunidades Europeias’ (1984) 3 Estudos de Direito Público, 9ff; Maria Isabel Jalles, Implications juridico-constitutionnelles de l’adhésion aux Communautés européennes – Le cas du Portugal (Brussels, Bruylant,1981), maxime 165ff and ‘Primado do Direito Comunitário sobre o Direito nacional dos Estados membros’ (1980) Documentação e Direito Comparado. 44 See generally Miranda, Manual de Direito Constitucional I, 2, 10th edn, 232–34; Canotilho Direito Constitucional, 214. 45 We have already developed these issues in Guerra Martins, ‘Portugal’. 46 On the need to amend the economic constitution in order to accomplish with the EMU Eduardo Paz Ferreira, ‘A constituição económica e a união económica e monetária: da construção do socialismo ao credo monetarista’, Em torno da revisão do Tratado da União Europeia (Coimbra, Almedina, 1997), 179ff. 47 Fernando Teixeira dos Santos, ‘The Euro and Monetary Policy – The Perspective from Portugal’ University of South Carolina, 15 December 15, 1997, Seminar on the ‘Global Impacts of European Monetary Union’ (Organized by the Richard Walker Institute of International Studies), available at www.fep.up.ptsdocentes/ftsantos/interven%C3%A7%C3%B5es/ Euro_and_monetary_policy.pdf. 48 See generally Miranda, Manual vol I, 2, 10th edn, 234–45; JJ Canotilho, Direito Constitucional e Teoria da Constituição, 211–14; Alexandre Sousa Pinheiro, Mário João de Brito Fernandes, Comentário à IV Revisão Constitucional (Lisboa, AAFDL, 1999), 11–31. 49 See especially Miranda, Manual I, 2, 10th edn, 245–46. 50 Ibid, 246–50. 51 Ibid, 250–51. 52 One has to mention that some scholars criticised the frequency of the constitutional amendments in Portugal. See especially Jorge Miranda, ‘Acabar com o frenesim constitucional’ in Nos 25 anos da Constituição da República Portuguesa de 1976 (Lisbon, AAFDL, 2001), 6ff; Ana M. Guerra Martins, ‘La Constitution portugaise: Une Constitution inflationniste’

Portugal  563

III.  Constitutional Obstacles to EMU Related Measures A.  Revealed Obstacles by the Implementation of the Crisis Management Measures Within and Outside EU Law The financial crisis that started in 2008, and the subsequent public debt crisis (2010/2014) revealed some obstacles that the EU Member States,53 including Portugal, had to face in order to implement the austerity measures imposed within and outside EU law. In Portugal, in the beginning, those measures were restricted to fiscal issues. However, during the financial and public debt crisis, and specifically after the request for external assistance and the signature of the Financial Assistance Programme (FAP) for Portugal,54 in May 2011,55 they were extended to several other matters. Such matters included cuts in staff, wages and other benefits for the public sector, cuts in pensions for the public and private sector, ‘flexibility’ of the labour market and reduction of unemployment benefits for the private sector. These measures led the Portuguese economy to a recession. Some of these measures were integrated into the SBLs of 2011,56 2012,57 2013,58 and 2014.59 Other measures were formally independent of the SBLs, but strictly linked to them, and a third group was completely autonomous. The unemployment rate increased, reaching over 17 per cent in 2013, income and social benefits were reduced, which led to more poverty, and the quality of public social services decreased. However, it must be pointed out that, as a rule, these cuts did not touch the lowest levels of wages, pensions and benefits. Some of these measures were challenged before the PCC, as we show below.60

B.  Obstacles to the (Further) Transfer of Powers in the Field of EMU Through Treaty Amendments i.  ‘Core Competences’, ‘Non-Transferable’ Constitutional Identities, Sovereignty Reserve In Portugal, further transfer of powers in the EMU field through Treaty amendments shall obey the same requirements and constitutional limitations as any other further transfer of powers to the EU.61 in G Amato et al, The Constitutional Revision in Today’s Europe / La révision constitutionnelle dans l’Europe d’aujourd’hui (London, Esperia Pub. 2002), 129ff. 53 For a study of the austerity measures and their consequences for the EU Member States, see Lisa Ginsborg ‘The impact of the economic crisis on human rights in Europe and the accountability of international institutions’ (2017) 1 Global Campus Human Rights Journal, 97ff; The Impact of the Economic Crisis and the Austerity Measures on Human Rights in Europe – Feasibility Study, adopted by the Steering Committee for Human Rights (CDDH) on 11 December 2015, Council of Europe, 2016; Margot Salomon ‘Of Austerity, Human Rights and International institutions’ (2015) 21 European Law Review, 521ff. 54 The content of this Programme will be explained below III.D.2. 55 The FAP for Portugal and all the documents related to it are available on the website of Banco de Portugal, www.bportugal.pt. 56 Law No 55-A/2010 of 31 December 2010 (Lei do Orçamento de Estado para 2011). 57 Law No 64-B/2011 of 30 December 2011 (Lei do Orçamento de Estado para 2012). 58 Law No 66-B/2012 of 31 December 2012 (Lei do Orçamento do Estado para 2013). 59 Law No 83-C/2013 of 31 December 2013 (Lei do Orçamento do Estado para 2014). 60 See below III.B.2. 61 See Guerra Martins, ‘Portugal’.

564  Ana Maria Guerra Martins, Joana de Sousa Loureiro Article 7 (6) CPR is the EU clause and provides that ‘Portugal may enter into agreements for the exercise jointly, in cooperation or by the Union’s institutions, of the powers needed to construct and deepen the European Union’ as long as the principles of reciprocity and subsidiarity and the fundamental principles of a democratic state based on the rule of law are respected.62 As the principle of subsidiarity does not apply to the monetary policy for the EU Member States whose currency is the euro, let us elaborate on the other potential constitutional obstacles to further EMU integration. Starting with the principle of reciprocity, in our opinion, it shall be interpreted rather flexibly. Otherwise, it would prevent the transfer of powers in EMU matters, when some EU Member States opt-out, which has already happened. That means the reciprocity shall be assessed in general terms and not on a case-by-case basis. The fundamental principles of a democratic state based on the rule of law are mentioned in several CPR provisions,63 because they belong to the CPR’s hardcore. Consequently, it is crucial to delimit the content of those fundamental principles. In our opinion, any transfer of powers to the EU, including in EMU related matters, shall respect the democratic principle, the pluralist principle, fundamental rights and freedoms and the principle of separation and interdependence of powers, as well as the guiding principles of a democratic state based on the rule of law, which, in the CPR, are the welfare state principle and the principle of citizens’ participation.64 Apart from these limits, Article 7(6) CPR also requires that the further transfer of powers in any field (including the EMU) shall be accompanied by a transfer of powers concerning the economic, social and territorial cohesion. That means that Portugal is constitutionally obliged to address the social dimension of the EMU. To sum up, the CPR does not give any blank checks to the negotiators. Instead, it provides constitutional limits that must be respected. Also, for some scholars,65 Article 288 CPR on ‘material limits of constitutional revision clause’, also applies in this context. For these scholars, the clause of Article 288 CPR enshrines the ‘core competences’ and ‘non-transferable’ powers in Portugal and delimits to some extent the Portuguese ‘constitutional identity’. We can hardly see the accuracy of extending the scope of a provision that was, without any doubt, strictly conceived to limit the internal power of a constitutional revision also to limit Portugal’s external power. In addition, one can hardly find explicit material limits linked to the EMU in Article 288 CPR. Apart from the general limits enshrined in paragraphs (a) and (j) of Article 288 CPR, concerning the national independence and separation and interdependence of the sovereignty organs, there is no mentioning of monetary, budgetary and fiscal issues that can collide with the EMU developments. ‘The coexistence of the public, private and cooperative and social sectors of ownership of the means of production’ and ‘the existence of economic plans, within the framework of a mixed economy’ enshrined in paragraphs (f) and (g) of Article 288 CPR respectively are rather neutral. Therefore, they do not hinder any further transfer of powers in the EMU field.

62 See II.A.1. 63 See, for instance, Art 8(4) CPR, which constitutionalised the principle of supremacy of EU law over domestic law. In accordance with that provision, the primacy of EU law depends on the respect for the fundamental principles of a democratic state based on the rule of law. 64 Alexandre Sousa Pinheiro, ‘Commentary to Art 109’ in P Otero, Comentário à Constituição Portuguesa, 25–35; Canotilho, Direito Constitucional, 301. 65 See, for instance, Carlos Blanco de Morais, ‘A sindicabilidade do direito da Unão Europeia pelo Tribunal Constitucional Português’, Estudos em Homenagem ao Prof. Doutor Sérvulo Correia (Coimbra, Coimbra Editora, 2010), 250ff.

Portugal  565 However, one has to admit that the participation of a state in the eurozone does impact its sovereignty regarding domestic monetary and budgetary policies as well as control of the financial system and financial markets.66 In the past, Portugal did not face any unsurmountable constitutional obstacles concerning the transfer of powers in the EMU field. For instance, the implementation of the European Semester calendar, the reforms of the Six Pack, Two Pack, TSCG and TESM implied many changes in the budgetary decision-making procedure, which led to many changes into the BFLs, but no amendment of the CPR. The Budget Framework Law also implemented the ‘golden rule’ or balanced budget rule, enshrined in Article 3(2) of the TSGC.67

ii.  Tensions between EMU Related Measures and the National (Constitutional) Legal Order In Portugal, the tensions between EMU related measures and the national constitutional legal order were visible in the so-called ‘case-law of the crisis’.68 The judicial review of the EMU related measures follows the general rules of a judicial review in Portugal. That means that if the EMU related measures belong to secondary EU law Portuguese courts, including the PCC, they lack the jurisdiction to control them. The judicial review of the EMU related measures included in other sources of law, such as treaties, follow the judicial rules of the legal source, which includes those measures. If EMU related measures violate the CPR – either they are included in a legal statute or treaty – Article 204 CPR states that ‘In matters that are brought to trial, the courts shall not apply rules that contravene the provisions of this Constitution or the principles enshrined therein’. As the provision does not distinguish between internal and international sources of law, the scholars mostly consider that the courts shall not apply any legal source, including an international one that contravenes the CPR. Article 277 CPR permits the PCC to review the compatibility of any rule – including international ones – with the principles and rules consecrated by Fundamental Law. Furthermore, Article 278 CPR permits an abstract preventive control of constitutionality of rules of international conventions. The PCC had never invalidated so many rules enclosed in SBLs as it did during the public debt crisis. The enforcement of the PCC’s decisions sometimes provided the government with different options in the area of economic policy. The SBL, as the main instrument of a democratically elected government, implements its political programme and public policies affecting the autonomy of the decision-making power in the area of economic policy. In fact, some of the Portuguese austerity measures were challenged before the PCC, which had to deal, on the one hand, with Portugal’s European and international commitments on economic and monetary matters, and, on the other hand, with the highly protective character of the CPR concerning fundamental rights, and especially social rights. 66 João Ferreira do Amaral, A reserva de soberania e o futuro de Portugal, 27 March 2017, available at www.abrilabril. pt/reserva-de-soberania-e-o-futuro-de-portugal. 67 Law No 151/2015 of 11 September 2015, published in Diário da República, 1st series, No 178 of 11 September 2015, latest amended by Law No 37/2018 of 7 August, published in Diário da República, No 151/2018 of 7 August 2018, www. data.dre.pt/eli/lei/37/2018/08/07/p/dre/pt/html. 68 For further reading see Ana Maria Guerra Martins, ‘Constitutional Judge, Social Rights and Public Debt Crisis: The Portuguese Constitutional Case Law’ (2015) 22, 5 MJ, 678ff; Mariana Canotilho, Teresa Violante, Rui Lanceiro ‘Austerity Measures under Judicial Scrutiny: The Portuguese Constitutional Case Law’ (2015) European Constitutional Law Review, 155ff; Roberto Cisotta, Danielle Gallo ‘The Portuguese Constitutional Court Case Law on Austerity Measures: A reappraisal’ (2014) Working Paper 4 LUISS Guido Carli – Dipartimento di Giurisprudenza; Jorge Reis Novais, Em Defesa do Tribunal Constitucional – Resposta aos críticos (Coimbra, Almedina, 2014), passim.

566  Ana Maria Guerra Martins, Joana de Sousa Loureiro a)  Ruling No 396/11 of 21 September 201169 The PCC was asked to declare several norms contained in the 2011 SBL70 as unconstitutional.71 These norms included measures that provided for cutting the wages of the public sector workers earning more than EUR 1,500 a month. There are two important aspects of the PCC’s decision in that case. First, the PCC considered that there is a constitutional right to a salary (Article 59(1)(a) CPR), but there is no right to keep the amount unchanged. The cuts of wages set out in the 2011 SBL aimed to decrease the public debt to the amount precisely imposed by the FAP for Portugal. Second, the PCC decided that the reductions in the pay of public sector workers were unequal insofar as they only targeted people who work for the state and other public law legal persons, but not workers who are paid for providing subordinate labour in the private or cooperative sectors, independent workers, or anyone else who earns income from other sources. However, it concluded that there are legitimate grounds for this differentiation. The PCC considered that the additional sacrifice demanded for a transitory period did not constitute unjustifiably unequal treatment, and consequently did not declare these measures unconstitutional.72,73 b)  Ruling No 353/12 of 3 July 201274 The PCC was asked to declare some norms of the 2012 SBL unconstitutional,75,76 on the grounds that they violated the principles of a democratic state based on the rule of law (protection of legal certainty), proportionality, and equality. These norms provided for ‘suspension of the Christmas and holiday month payments’, while simultaneously maintaining the measures involving ‘wages reductions’ in the 2011 SBL. The reasons the legislator gave for adopting these measures were primarily based on the need to comply with the budget-deficit limits (4.5% of GDP in 2012) imposed in both the Technical Memorandum of Understanding and the Memorandum of Economic and Financial Policies. Specific norms that provided for a measure under which the Christmas-month (thirteenth month) and holiday month (fourteenth month) or any equivalent payments were suspended from 2012 to 2014, for persons who receive salary-based remunerations from public entities or retirement pensions via the public social security system. These were considered unconstitutional because they violated the constitutional principle of equality that requires the just distribution of public costs. There should have been limits to the difference between the degree of the sacrifice made by the persons affected by these measures and those who were not. Furthermore, the inequality caused by the difference in situations should have been proportionate. The dire economic and financial situation and the need for the measures that were adopted to be effective could not relieve the legislator from its obligation to observe fundamental rights and key structural principles of the state based on the rule of law. This is true, specifically regarding principles such as that of proportional equality. 69 Portuguese version in www.tribunalconstitucional.pt/tc/acordaos/20110396.html. 70 Arts 19, 20 and 21 of Law No 55-A/2010 (Lei do Orçamento de Estado para 2011) of 31 December 2010, published in Diário da República, First series, No 253, of 31 December 2010. 71 Cf Art 281 (1)(a) and (2)(f) CPR. 72 The Ruling contains three dissenting opinions. 73 For a comment see G Fonseca, ‘Anotação ao Acórdão no 396/11 do Tribunal Constitucional’ (2011) 6 Revista de Direito Público, 269ff. 74 Portuguese version in www.tribunalconstitucional.pt/tc/acordaos/20120353.html. 75 Cf Art 281 (1)(a) and (2)(f) CPR. 76 Law No 64-B/2011 of 30 December 2011 (Lei do Orçamento de Estado para 2012).

Portugal  567 The PCC considered that legal equality is always a proportional equality, so no inequality justified by a difference in situations is immune from a proportionality consideration. The PCC also said that the difference in treatment in the case before it was so substantial and significant that the efficacy-related reasons advanced for the measures were insufficient to justify such a large difference, all the more so given that alternative solutions were available. Bearing in mind that the execution of the 2012 Budget was already well underway, the PCC restricted the effects of the declaration of unconstitutionality, as permitted by Article 282(4) CPR, and did not apply them to the suspension of payment of the Christmas and holiday bonuses or any equivalent payments with regard to 2012.77 This was the first time the PCC ever restricted the effects of its decision in such a way.78 c)  Ruling No 187/2013 of 5 April 201379 This is one of the most difficult decisions of the so-called ‘case-law of the crisis’ not only because of its substance but also because of the complexity of the constitutional questions involved. The legislator, reacting to the declaration of unconstitutionality of the former SBL norms, tried to create new measures fighting the public deficit and simultaneously avoiding the PCC’s constitutionality review. The PCC was asked by several entities (including the president of the Republic, MPs and the Ombudsman) to review the constitutionality80 of the following norms contained in the SBL for 2013:81 i. the suspension of the payment of the extra holiday month of salary or its equivalent; ii. the same suspension for retirees from both the public and the private sectors; iii. the imposition of an ‘extraordinary solidarity contribution’ payable on pensions (at rates of between 3.5 per cent and 10 per cent, with pensioners already paying the 10 per cent rate subjected to an additional 15 per cent rate on the part of their pensions that exceeds 12 times the reference amount used to set, calculate and update contributions, pensions and other social benefits (the so-called Social Support Index Value – IAS), and to a rate of 40 per cent on the amount of their pensions over and above 18 times the IAS; iv. a reduction in the pay of public sector staff; v. a reduction in the remuneration, and suspension of the extra holiday month, payable under teaching and research contracts; vi. a reduction in the sums payable as overtime; vii. the imposition of a contribution payable on sickness and unemployment benefits; viii. some changes to the Personal Income Tax brackets.

77 Three Justices were of the view that the effects of the declaration of unconstitutionality should also extend to the current year, and dissented from the decision to exclude 2012 and three Justices dissented from the declaration of unconstitutionality as such. 78 For a comment, see Miguel Nogueira de Brito ‘Comentário ao Acórdão 353/2012 do Tribunal Constitucional’ (2013) 1 Direito e Política, 201 108ff; Antonio Carlos Santos, Clotilde Celorico Palma ‘O Acórdão do Tribunal Constitucional No 353/12, de 5 de Julho’, 5 (2012) Revista de Finanças Públicas e Direito Fiscal, 31ff; Ricardo Branco ‘Ou sofrem todos ou há moralidade’: Breves notas sobre a fundamentação do Acórdão do Tribunal Constitucional no. 353/12, de 5 de Julho’ in J Miranda et al., Estudos em Homenagem a Miguel Galvão Teles (Coimbra, Almedina, 2012) 329ff. 79 Portuguese version in www.tribunalconstitucional.pt/tc/acordaos/20130187.html. 80 Cf Art 281 (1)(a) and (2)(a) (d) (f) CPR. 81 Law No 66-B/2012 of 31 December 2012 (Lei do Orçamento do Estado para 2013), published in Diário da República, First series, No 252, of 31 December 2012.

568  Ana Maria Guerra Martins, Joana de Sousa Loureiro The PCC declared unconstitutional only the norms related to the suspension of the payment of the extra holiday month of salary or its equivalent for Public Administration staff,82 the same suspension for retirees from both public and private sectors,83 as well as the imposition of a contribution payable on sickness and unemployment benefits.84 Other norms like the continued reduction of wages85 and the Extraordinary Solidarity Contribution (ESC) for pensioners,86 were not deemed to be unconstitutional. Concerning the suspension of the additional holiday month of salary or equivalent for Public Administration staff, the PCC, referring to Ruling No 353/12, considered it violated the principle of equality that requires just distribution of public costs. The PCC applied the same reasoning to the suspension of the holiday month of pensions for public and private sector retirees, declaring it unconstitutional. Furthermore, the PCC declared the norm that provided for a contribution payable on unemployment and sickness benefits to be unconstitutional, because it violated the principle of proportionality.87,88 d)  Rulings No. 574/1489 and 575/14 of 14 August 201490 In order to avoid another declaration of unconstitutionality of norms contained in SBL, while they were already in force, the PCC was asked for an ex ante review of the constitutionality91 of two Decrees of the parliament. The first Decree approved a regime establishing temporary pay cut mechanisms and the conditions for their reversal within a maximum of four years. This included a pay cut in 2014 for staff paid out of public funds (similar to the one created in the SBL for 2011); a pay cut in 2015 equal to 80 per cent of the 2014 equivalent; and the inclusion in the law of provisions under which similar cuts would apply in the subsequent years up until 2018. Altogether, these measures added five more years to past cuts, thus bringing the total consecutive number of years with such cuts to eight (2011–18). Unlike 2014 and 2015, the Decree did not specify the number of reductions that would apply in each year between 2016 and 2018. Recalling the essential elements of its former jurisprudence, in Ruling No 574/14 of 14 August 2014,92 the PCC considered that systematically presenting the successive pay cut measures since 2011 as transitional – ie, that they would be reversed – had generated the respective expectations on the part of workers paid out of public funds that their wages would improve with time. The PCC acknowledged that Portugal had already fulfilled the terms of the FAP for Portugal, but the constraints from international and European commitments – particularly those arising out of the Treaty on the Functioning 82 See paras 42–46. 83 See paras 54–59. 84 See paras 84–94. 85 See paras 26–27. 86 See paras 69–83. 87 For a comment see Aquilino Paulo Antunes ‘Breves Notas ao Acórdão do Tribunal Constitucional N.º 187/2013 quanto à contribuição extraordinária de solidariedade’ (2014) 2 E-Publica, Revista Electrónica de Direito Público, 1ff. Criticising the decision of the Court concerning the reduction of pensions for public and private sector see Jorge Reis Novais ‘O direito fundamental à pensão de reforma em situação de emergência financeira’(2014) 1 E-Pública – Revista Electrónica de Direito Público, 2ff. 88 This Ruling was the object of many partial dissenting opinions. 89 Portuguese version in www.tribunalconstitucional.pt/tc/acordaos/20140574.html. 90 The Portuguese version is available on the website of the PCC. www.tribunalconstitucional.pt/tc/acordaos/20140575. html. 91 Cf Art 278 (1) CPR. 92 Portuguese version in www.tribunalconstitucional.pt/tc/acordaos/20140574.html.

Portugal  569 of the European Union (TFEU) and TSCG and the effect of the excessive deficit procedure still persisted. The logical consequence of these circumstances which increased the relevance of the underlying public interest was that the pay cuts in 2015 remained within the limits of reasonable expectations and were, therefore, in conformity with the principle of legal certainty. In 2016–18, however, a variety of indicators and, above all, the government forecasts set out in the Budgetary Strategy Document reflected an economic scenario in which there will be an improvement in the economic and financial situation, and this can be expected to affect the situation of workers paid out of public funds. As of 2016, the FAP being over and the excessive deficit procedure terminated, additional reasons would be needed to support the constitutionality of the pay cut measures. Given the constitutional requirement that public costs must be shared equally, it was not constitutionally permissible, in order to balance the public finances, to cut spending by continuing to sacrifice workers’ welfare. In conclusion, the PCC pronounced the norms applicable to 2016–2018 as unconstitutional.93 The second Decree of the parliament concerned the creation of a Sustainability Contribution (SC). In Ruling No 575/14 of 14 August 2014,94 the PCC rejected outright both the idea that the SC was comparable to the earlier ESC and the allegation that the people affected by the former would be better off in terms of the amount of their pensions than they had been under the latter.95 The PCC also followed its case law on social rights.96 However, the measure sub judice raises serious difficulties on the level of both equality, internal fairness and intra-generational justice.97 On the one hand, it did not resolve any problem on the inter-generational justice level.98 On the other, the norms accentuated both the situation of inequality applicable to existing pensioners and that regarding the current contributors to and beneficiaries of the pension system.99 The SC would have been completely indifferent to both the effort made by future pensioners and the cut that the legislative amendment would have imposed on pensions ab initio. Accordingly, the PCC found these norms in breach of the principle of the protection of legal certainty and therefore pronounced them unconstitutional.100 e)  Ruling No 602/13 of 20 September 2013101 In this Ruling, the PCC appreciated some rules amending the Labour Code (LC)102 and declared unconstitutional: i.

the norm concerning the requisites for dismissing workers on the grounds that their jobs are eliminated, emphasising that the constitutional prohibition on dismissal without just cause

93 Three Justices dissented (one partially) from the decision not to find the norms that cut the pay of workers paid out of public funds in 2014 and 2015 unconstitutional and five Justices dissented from the decision of unconstitutionality of the norms that cut the pay of such workers in 2016–18. One Justice attached a concurring opinion to the Ruling. 94 The Portuguese version is available on the website of the PCC, www.tribunalconstitucional.pt/tc/acordaos/20140575. html. 95 Compare Ruling No.575/14 of 14 August 2014, para. 29. 96 See ibid, para 20. 97 Compare ibid, para 34. 98 Compare ibid, para.35. 99 Compare ibid, para 36. 100 For a critical view see Loureiro, ‘Contribuição de sustentabilidade § companhia – linhas para uma discussão constitucional’. 101 The Portuguese version is available on the Website of the PCC, www.tribunalconstitucional.pt/tc/acordaos/20130602. html. 102 Law No 23/2012 of 25 June 2012 that amended the LC approved by Law No 7/2009 of 12 February 2009, published in Diário da República, first series, No 121, of 25 June 2012.

570  Ana Maria Guerra Martins, Joana de Sousa Loureiro (Article 53 CPR) can be breached by both legal provisions that allow inappropriate grounds for dismissal, and provisions that establish rules which do not do enough to safeguard workers’ positions.103 ii. the norm relating to the dismissal on the grounds of the unsuitability of the worker for her/ his job contained in a law that amended the LC, if no alternative position is available that is compatible with the worker’s qualifications.104 f)  Ruling No 862/13 of 19 December 2013105 The PCC dealt with a Decree106 that intended to deepen social protection convergence mechanisms between the general social protection security system and the system of Caixa Geral de Aposentações (CGA), which is the public sector pension fund. The measures previewed in the abovementioned Decree solely applied to the beneficiaries of old age, retirement, disability and survivor’s pensions from Caixa Geral de Aposentações (CGA), paid a monthly amount of more than EUR 600. It cut the value of pensions subject to the regime set out in the Statute governing the Retirement of Public Sector Staff107 by 10 per cent and provided for the application of a new formula for calculating the pensions. It formed part of the general reform intended to ensure convergence between the general social security system and that applicable to public administration staff (Article 63(2) CPR). The PCC took the view that the measures contained in the norms questioned would have resulted in an abrupt cut in the pensions concerned and did not form part of a framework of structural cross-cutting measures designed to ensure across-the-board progress in fulfilling the interest of convergence on other levels. According to the PCC, the measures did not adequately pursue (1) the public interests invoked by the author of the norms (sustainability of the CGA system, intergenerational fairness, and the need for the country’s different social protection systems to converge), in a way that would have made it acceptable for them to prevail over the injury caused to the rights already acquired by existing CGA pensioners and (2) the latter’s legitimate expectations that the pension amounts they receive in the future will remain the same.108 Therefore, the PCC held that these norms were in breach of the constitutional principle of the protection of legal certainty.109

103 Compare Ruling No 602/13 of 20 September 2013, paras 28–32. 104 Compare Ibid, para 33–37. 105 The Portuguese version is available on the Website of the PCC, www.tribunalconstitucional.pt/tc/acordaos/20130862. html. 106 Decree No 187/XII of the parliament. 107 Law No 478/72 of 9 December 1972. 108 See Ruling No 862/23 of 19 December 2013, paras 38–44. 109 For a comment, see Nazaré da Costa Cabral ‘Convergência do Regime de Proteção Social da Função Pública com o regime geral da Segurança Social’ (2013) 6 Finanças Públicas e Direito Fiscal, 255ff; Luís P Pereira Coutinho, ‘A “convergência das pensões” como questão política’(2014) 1 E-Pública – Revista Electrónica de Direito Público, 14ff; Vitalino Canas ‘Constituição prima facie: igualdade, proporcionalidade, confiança aplicados ao ‘corte’ de pensões’ (2014) 1 E-Pública – Revista Electrónica de Direito Público, 28ff. Supporting the unconstitutionality before the judgment of the Court see João Carlos Loureiro ‘Sobre a (in)constitucionalidade do regime proposto para a redução dos montantes de pensões de velhice da Caixa Geral de Depósitos’, Website of the University of Coimbra, 2013, http://apps. uc.pt/mypage/files/fd_loureiro/563.

Portugal  571

iii.  Scrutiny of Secondary Legislation, Especially Ultra Vires Doctrine Although neither case law nor the Portuguese scholarship have so far deeply discussed ultra vires doctrine, in our view, it also applies in Portugal, due to Article 8 (4) CPR. This provision states that the provisions of the treaties that govern the European Union and the rules issued by its institutions in the exercise of their respective responsibilities shall apply in Portuguese internal law in accordance with Union law and with respect for the fundamental principles of a democratic state based on the rule of law.

That means that the CPR only ensures the application of secondary EU law rules over national law provided that those rules had been adopted by the EU institutions in the exercise of their respective competences. If the EU institutions exceed their powers, the CPR does not grant the supremacy principle. Up to now, there are no examples of the application of this doctrine in Portugal.110

C.  Limits to ‘European Integration Outside the EU Legal Order’ i.  The Financial Assistance Programme for Portugal of May 2011 Starting with the FAP, during the international financial crisis, Portuguese ‘public spending increased significantly, European fiscal rules were violated, and public debt rose to unsustainable levels’.111 In the context of the eurozone crisis, Portugal failed to control its government deficit, which ‘leads to increased risk premia, rising interest rates, and distrust of markets that ultimately deny new loans’.112 After a defeat in a parliamentary vote of an austerity measures package, known as PEC IV SGP (SGP 2011–14), the then prime minister resigned on 23 March 2011, and this precipitated the financial emergency. Portugal was forced to enter a three-year adjustment programme with the EC, the ECB, and the IMF – the so-called FAP. On 8 April 2011, Eurogroup and ECOFIN Ministers issued a statement clarifying that EU (European Financial Stabilisation Mechanism) and euro-area (European Financial Stability Facility) financial support would be provided on the basis of a policy programme supported by strict conditionality and negotiated with the Portuguese authorities, duly involving the main political parties, by the Commission in liaison with the ECB, and the IMF. Further to the EU support from the EFSM, loans from the European Financial Stability Facility (EFSF) will contribute to the financial assistance. The Loan Facility Agreement on the EFSF financing contribution will specify that the disbursements there under are subject to the compliance with the conditions of this Memorandum.113

The FAP comprised a set of legal instruments: a technical Memorandum of Understanding and a Memorandum of Economic and Financial Policies, which set out the terms and conditions governing the provision of financial assistance to Portugal by the IMF and a Memorandum of

110 For further reading on the application of the ultra vires doctrine in Portugal, see Ana Maria Guerra Martins, Manual de Direito da União Europeia (Lisbon, Almedina, 2017) 540ff. 111 Cavaco Silva, ‘Portugal’ 14. 112 Ibid. 113 See fn 1 of Portugal Memorandum of Understanding on Specific Economy Policy Conditionality of 17 May 2011, available at www.ec.europa.eu/economy_finance/eu_borrower/mou/2011-05-18-mou-portugal_en.pdf.

572  Ana Maria Guerra Martins, Joana de Sousa Loureiro Understanding on Specific Economic Policy Conditionality, which set out the terms of assistance by the EU. Besides the Memoranda, the FAP also comprised loans agreements. The technical Memorandum of Understanding and a Memorandum of Economic and Financial Policies were signed by the finance minister and the governor of the Bank of Portugal from the Portuguese side and by the IMF. The Memorandum of Understanding on Specific Economic Policy Conditionality was signed by the same authorities from the Portuguese side and the EC and the European Central Bank. These Memoranda required Portugal to adopt the agreed/ defined measures as conditions for the phased fulfilment of the financing contracts entered into force by the same parties. These measures sought to reduce the expenditure and increase the revenue of Portugal and focused on several fields – fiscal policy, structural fiscal reforms, financial and corporate sector policy, including the banking sector, structural policies, including labour market reforms, privatisation and judicial reform. Taking into account that the Memoranda did not follow the international binding procedure foreseen in the CPR, because they were not submitted to the parliament, and not published in the Portuguese Official Journal (Diário da República), some authors sustained that they were unconstitutional.114 Furthermore, they argued that the PCC, within the scope of the ‘case-law of the crisis’, should have reviewed the constitutionality of these Memoranda.115 However, as the first author of this study wrote in an earlier article, these instruments had never been challenged before the PCC.116

ii.  TESM and TSCG Since the CPR does not contain any specific limits to ‘European integration outside the EU legal order’, the TESM and TSCG had to both respect the constitutional rules concerning negotiation, approval and ratification (if necessary) of treaties and shall also respect the substantive rules and principles of the CPR. However, due to the content of the above-mentioned treaties, once in force, they have a particular relationship with EU law, since the EU’s institutional framework, and the CJEU’s jurisdiction apply to them.

D.  Constitutional Feasibility Study of EMU Reform Proposals Following the Five Presidents’ Report of 2015, and the Reflection Paper on the deepening of the EMU,117 the Commission presented a set of proposals concerning the EMU structural and institutional reform, which cover banking, fiscal and finance issues.118 Among the reforms was the possible creation of the post of a European Minister of Economy and Finance, who should be the Commissioner for economic and financial affairs, ideally also a vice-president. 114 See, for instance, Francisco Pereira Coutinho, ‘Austerity on the loose in Portugal: European Judicial restraint in times of crisis’ (2016) 8 (3) Perspectives of Federalism, E-124. 115 Cf José Melo Alexandrino ‘Jurisprudência da Crise. Das Questões Prévias às Perplexidades’ in GA Ribeiro, LP Coutinho, O Tribunal Constitucional e a crise – ensaios críticos (Coimbra, Almedina, 2014) 62, 63. For further reading on the legal nature of the Memoranda see Francisco Pereira Coutinho ‘A natureza jurídica dos memorandos da «troika»’ (2013) 24/25 Themis, 147–79; Pereira Coutinho Austerity E-124. 116 Guerra Martins ‘Constitutional Judge’, 689ff. 117 EC, COM(2017) 291, Reflection paper on the deepening of the economic and monetary union. 118 On EMU reform see, above all, Paul P Craig, Menelaos Markakis, ‘EMU Reform’ in F Amtenbrink, C Herrmann (eds), The EU Law of Economic and Monetary Union (OUP, 2019 forthcoming) Ch 9.3.

Portugal  573 He/she should also preside over the Eurogroup.119 In addition, the proposal of a Regulation on an EMF is supposed to give the EMU more unity, more efficiency and more democratic accountability. The Portuguese government welcomed the EMU reform in general.120 The Portuguese prime minister even told the plenary session of the European Parliament in Strasbourg, on 14 March 2018, that the eurozone will never reach its full potential and may face a new crisis in the future without a fiscal capacity, and added that Europe’s priority must be to complete the EMU. The prime minister argued for broader eurozone reform, including a fiscal capacity for the eurozone, which is opposed by a group of countries.121 In Portugal, there are also some sceptical voices, such as the governor of the Bank of Portugal – Carlos Costa – who does not believe that the proposals of the Commission will attract the consensus of the EU Member States. In contrast, the vice-governor – Luís Máximo dos Santos – supported the idea that the reform of the EMU is absolutely necessary.122 Some divergences also exist among the political parties. While the PSD (Social Democratic Party) enthusiastically supports the EMU reform proposed by the Commission, the Communist Portuguese Party and the Left Bloc are totally against it. As a matter of fact, in June 2018, Rui Rio – the president of the PSD (Social Democratic Party) – published a document, which was prepared by the Strategic National Council of the Party, supporting the EMU reform, including the EMF and the minister of economy and finance.123 Conversely, the Communist Party Member of the European Parliament – Miguel Viegas – rejected the report on the proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States. According to the Communist Party, the EMU reform proposals of the Commission violate the CPR because they violate the sovereignty of the state, some fundamental rights, such as the social rights of the workers, the constitutional rules that foresee the existence of a Health National Service and a public education system. In our view, some EMU reform proposals raise sensitive issues either within the domain of the division of powers between the EU and the Member States or the balance of powers between the institutions, as the vice-governor of the Bank of Portugal – Luís Máximo dos Santos – pointed out in the abovementioned international conference. However, that does not mean that the envisaged EMU reform will necessarily lead to CPR amendments. In our opinion, the CPR still permits a rather wide margin for further transfer of competences to the EU. The potential obstacles will come rather from politicians and the economy than from the legal framework. 119 This was mentioned by President Juncker in his 2017 State of the Union address, of 13 September 2017. 120 Rules to enhance fiscal discipline and structural reforms, European Commission, COM (2017)824, Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States; and EC, COM(2017)826 Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006; Macroeconomic stabilisation mechanism for asymmetric economic shocks EC COM(2017)822 Communication on new budgetary instruments for a stable eurozone within the Union framework, eurozone fiscal capacity, European Parliament resolution of 16 February 2017 on budgetary capacity for the eurozone (2015/2344(INI)); EC, COM(2018) 823 Communication on a European Minister of Economy and Finance Fiscal backstop for banking union (SRF, EDIS), EC, COM(2017)827 Proposal for a Council Regulation on the establishment of the EMF. 121 Source: www.euractiv.com/section/economy-jobs/news/portuguese-pm-eurozone-needs-fiscal-leg-for-stability-growth/ 122 www.bportugal.pt/intervencoes/intervencao-de-encerramento-do-vice-governador-luis-maximo-dos-santos-noseminario. 123 www.psd.pt/ficheiros/ficheiros/ficheiro1529681904.pdf

574  Ana Maria Guerra Martins, Joana de Sousa Loureiro

IV.  Constitutional Rules and/or Practice of Implementing EU Law and EMU Related Instruments A.  Portuguese Parliament and Government in EU Decision-Making As it is well known, the Treaty of Lisbon strengthened the powers of national parliaments within the EU framework. Articles 5(3) TEU concerning the principle of subsidiarity, Article 12 TEU relating to the contribution of the national parliaments to the good functioning of the EU, Articles 69, 70 and 71 TFEU on the Area of Freedom, Security and Justice, as well as Protocol (No 1) on the role of national parliaments in the EU, and Protocol (No 2) on the application of the principles of subsidiarity and proportionality expressly mention the participation of national parliaments regarding the EU. As we have mentioned above, under Articles 161(n) and 163(f) CPR, the parliament has the specific competences ‘[t]o pronounce, as laid down by law, on matters awaiting decision by European Union organs that concern the sphere of its exclusive legislative competence’ and ‘to monitor and consider Portugal’s participation in the process of constructing the European Union’, respectively. Furthermore, under Article 164(p) CPR, the parliament has the exclusive legislative competence to legislate the regime governing the appointment of members of EU organs, with the exception of the Commission. These provisions were implemented by Law No 43/2006 of 25 August,124 lastly amended by Law No 18/2018 of 2 May.125 The parliament plays an active role in EU matters, preparing an annual report on the participation of Portugal in the EU and has developed a website that allows access to the whole process of scrutiny of the European initiatives.126 Concerning the specific procedures stated in the Law No 43/2006, the parliament has two main powers. First, it issues opinions (1) on matters falling within the sphere of its exclusive legislative competence and pending for a decision at EU bodies (Article 1-A), in conformity with the principle of subsidiarity (Article 3) and (2), in general terms, on EU policy documents and proposals for action (Articles 4 and 7).127 Second, it sets out the parliamentary assessment process, which involves the whole parliament, from the committees with responsibility for the matter in question to the European Affairs and the Plenary itself.128 This assessment process starts in the parliament, via the European Affairs Committee (EAC), which is the parliamentary committee with the competence to monitor and assess European affairs in overall terms (Article 6 (1)). It receives the initiatives from the various European institutions, and then forwards them, depending on their subject matter, to the various parliamentary committees, which may decide to draft a report. At the same time, if the subject matter in question falls within the competence of the Legislative Assemblies of the Autonomous Regions, they should also be consulted (Article 3 (4)). If the draft acts fall within the sphere of the Assembly

124 Published in Diário da República, First Series, No 164, of 25 August 2006. 125 Published in Diário da República, First Series, No 84, of 2 May 2018. The text of the law is available in English at www. en.parlamento.pt/Legislation/Law21_2012EN.pdf. 126 www.parlamento.pt/europa/Paginas/iniciativaseuropeias.aspx. 127 See also Art 261(1) of the Rules of Procedure of the Assembly of the Republic. 128 For example, concerning the SGP reforms, by the time this report has been written, the parliament is planning to invite the president of the Eurogroup, Mário Centeno, who is also the Portuguese finance minister, to be heard by the EAC.

Portugal  575 of Republic’s exclusive legislative competence, the government shall request the parliament’s opinion (Article 2 (2)). When the parliamentary standing committees approve a report, it is sent to the EAC (Article 2 (3)). The EAC then prepares a final Written Opinion, in which it shall pronounce on the compliance of a particular initiative with the principle of subsidiarity and reflect on any concerns about the substance of the European proposal expressed by the committee with responsibility for the matter in question (Article 6 (3)). This Written Opinion is considered and voted on in an EAC meeting. Finally, the Written Opinion approved by the EAC, together with the report of the competent committee, is sent by the president of the parliament to the European institutions and the government (Article 7 (7)). If the proposal under consideration is deemed to breach the principle of subsidiarity or has politically important implications for Portugal, the EAC may draw up a draft resolution for submission to the Plenary for approval (Article 3 (3)) and then sent to the European institutions that issued the proposal. The process described above must be completed within eight weeks, as required by the Treaty of Lisbon. The scrutiny of other European initiatives follows mutatis mutandis the same procedure. The EAC has also adopted the so-called ‘enhanced scrutiny’ procedure. Each parliamentary committee, when preparing its annual Report on the Work Programme of the European Commission, reports on whether it intends to subject any legislative initiative or other matter to enhanced scrutiny. Every year, the EAC organises a public hearing involving the members of all parliamentary committees, one member of the EC, one member of the Portuguese government, Portuguese members of the European Parliament and members of the legislative assemblies of the autonomous regions to debate the EC’s Work Programme. After the meeting, the EAC selects the initiatives for enhanced scrutiny and submits them to the Plenary for approval in the form of a resolution. Each year, the European initiatives that the parliament regards as priorities for scrutiny are the subject of a programme of hearings with members of the government, members of the European institutions and stakeholders arranged by the EAC, in coordination with the competent parliamentary committee. In 2018, one of the priorities has been the conclusion of the EMU. Lastly, since the entry into force of Law No 43/2006, in 2006, the Assembly of the Republic has successfully implemented a methodology for the systematic monitoring of European initiatives, which has resulted in the scrutiny of a significant number of these initiatives and has generated significant internal momentum involving the EAC and the standing parliamentary committees. Specifically, in the field of EMU, Article 4(1)(d) of Law No 43/2006129 states that the parliament shall debate in Plenary, with the participation of the government, the EU instruments of economic governance, that are included in the European Semester, and particularly on the SGP in the second quarter of the year. As established in Article 62(3)(c) of the Rules of Procedure of the parliament,130 the consideration of Portugal’s participation in the process of constructing the EU is qualified as a matter possessing ‘relative priority’131 in setting the order of business of the Plenary’s agenda.



129 Added

by Law No 21/2012 of 17 of May, published in Diário da República, First Series, No 96 of 17 May 2012. at www.en.parlamento.pt/Legislation/Rules_of_Procedure.pdf. means that it is a priority theme that should be discussed more urgently than others.

130 Available 131 This

576  Ana Maria Guerra Martins, Joana de Sousa Loureiro If a proposal for an EU act that is under consideration at the European institutions falls within the sphere of the exclusive legislative competence of the Assembly of the Republic (Article 1-A of the Law 43/2006), it shall pronounce itself on it. The Government must inform the Assembleia da República and ask it for an opinion, and shall in a timely manner send an information note containing a summary of the draft act, an analysis of its implications and, if one has already been defined, the position which the Government wishes to adopt. The European Affairs Committee shall draw up the opinion in articulation with the parliamentary committees with competence for the matter in question. The opinion shall be submitted to the Plenary for the purposes of discussion and voting, in the form of a draft resolution.132

Although once approved, this resolution is not legally binding on the members of the government, who are going to negotiate in Brussels, it has huge political weight because the government is politically responsible before the Assembly. Therefore, it usually follows the resolution of the Assembly, especially when exclusive legislative competences are on stage. Furthermore, [a]t any subsequent stage of the decision-making process at the European Union bodies, the Assembleia da República may, on its own initiative or that of the Government, draw up new opinions and put them to the vote or update the one that has already been passed.133

If a proposal for an EU act that is under review by the parliament is deemed to breach the principle of subsidiarity or has politically important implications for Portugal, the parliament shall issue a resolution containing a reasoned opinion on that matter, which will be sent to the European legislators. In these cases, like in the former one, parliamentary resolutions are not legally binding for the ministers acting in the Council, but they influence the decision. Accordingly, the parliament has the rights to monitor, assess and pronounce itself on Portugal’s participation in the process of constructing the EU and exercise the powers of the national parliaments as set out in the EU treaties. The Portuguese parliament has the right to be informed, consulted, to submit inquiries, and to pronounce itself on EU matters. Nevertheless, the decision itself belongs to the government.

B.  Country-Specific Techniques of Implementing Secondary Legislation The legislative requirements concerning the implementation of secondary EU law depend on its nature. The EU regulations being directly applicable, do not need any legislative implementation. According to Article 8(3) CPR they ‘come directly into force in Portuguese national law, on condition that this is laid down in the respective constituent treaties. Regarding directives, as they shall be transposed into national law (Article 288 TFEU), Article 112(8) CPR determines that this transposition shall be carried out by the Assembly of the Republic, the government or the Autonomous Regions, depending on the matter, and take the form of a law, a decree-law or a regional legislative decree, respectively. In the event that EU rules also require administrative implementation, ‘Government regulations shall take the form of regulatory decrees when so required by the law they regulate, as well as independent regulations’ (Article 112(6) CPR). Administrative practices may also be appropriate to implement secondary EU law.

132 Art 133 Art

1-A (2) (3) and 84) of the Law 43/2006. 1-A (5) of the Law/43/2006.

Portugal  577 Regarding the implementation of non-EU instruments in the field of EMU, such as the TESM, the TSCG and the TF, as already mentioned, the most important rules of these international instruments were integrated into the national Budget Framework Law.

C.  Political Control of EMU Related Measures The CPR does not provide for any special political control of EMU related measures. In general, the option for the direct participation tool of holding a referendum must be carried out on the basis of Article 115(3) CPR, which determines that ‘[o]nly important issues concerning the national interest which the Parliament or the Government must decide by approving an international convention or passing a legislative act may be the object of a referendum’. In addition, Article 295 CPR, introduced by the revision of 2005, expressly states that ‘[t]he provisions of Article 115(3) do not prejudice the possibility of calling and holding referenda on the approval of treaties concerning the construction and deepening of the European Union’. Accordingly, further developments of EMU integration may be subjected to a referendum. However, in Portugal, the exercise of political power through a referendum does not have any tradition. Furthermore, it is important to note that the parliament has exclusive competence unless it authorises the government to legislate on ‘[t]he creation of taxes and the fiscal system, and the general regime governing duties and other financial contributions to public entities’ and on the monetary system (Articles 165(1)(i) and (o) CPR). Moreover, the abovementioned Law on monitoring, assessment and pronouncement by the parliament within the scope of the process of constructing the European (Law No 43/2006) states in Article 5 (1) that The Government must keep the Parliament informed in a timely manner about the subjects and positions that are to be discussed at European institutions, as well as about proposals that are under discussion and negotiations that are underway, sending the Assembleia da República all the relevant documentation as soon as it is presented or submitted to the Council.

Furthermore, Article 4(3) of the same Law establishes that the Parliament shall consider the European Union’s financial programming, particularly with regard to the structural funds and the Cohesion Fund, in accordance with the Law on the Budget Framework, the Major Options of the Plan, the Regional Development Plan or other national programmes that provide for the use of such funds.

Under the terms of Article 6(2)(i) of Law No 43/2006, the EAC has the competence to intensify the exchanges between the Assembleia da República and the European Parliament, proposing the attribution of reciprocal facilities, regular meetings and the possibility of holding videoconferences with Members of the European Parliament, particularly those elected in Portugal, who shall regularly meet the European Affairs Committee.

Article 6 (2)(j) of the same Law also draws attention to the competence of the EAC to ‘arrange meetings or hearings with European Union institutions, bodies and agencies of the EU on subjects that are important to Portugal’s participation in the construction of the European Union’. Specifically, in EMU matters, the parliament has powers of inquiry with respect to the finance minister. These powers have been used to inquire about SGP reforms and developments, mainly after Mário Centeno was elected president of the Eurogroup.

578  Ana Maria Guerra Martins, Joana de Sousa Loureiro

D.  Democratic Legitimacy and Accountability of Fiscal and Economic Policy In compliance with the SGP reforms of 2011 and 2013,134 the Public Finance Council, a new and independent entity, was created in 2011. According to Article 6 of its Statutes (approved by Law No 54/2011, of 19 October of 2011, as amended by Law No 82-B/2014, of 31 December of 2014135) tasks are: a) Assessment of the macroeconomic scenarios adopted by the Government and the consistency of budget projections with these scenarios; b) Assessment of whether the fiscal rules laid down are complied with; c) Analysis of the dynamics of the public debt and its sustainability; d) Analysis of the dynamics of existing commitments, with special emphasis on the pensions and health systems and on public-private partnerships and concessions, including an assessment of their implications for the sustainability of the public finances; e) Assessment of the financial position of the autonomous regions and local governments; f) Assessment of the economic and financial situation of public enterprises, and their potential impact on the consolidated public accounts and their sustainability; g) Analysis of tax expenditures; h) Monitoring of the budget outturn.

The governing bodies of the Council are the Senior Board, the Executive Committee and the auditor. The respective members are appointed by the Council of Ministers, on a joint proposal of the president of the Court of Auditors and the governor of the Bank of Portugal.136 As we have mentioned above, the rules laid down in the TSCG, including the ‘golden rule’ were transposed into national law by incorporating them in the BFL. The automatic correction mechanism is foreseen in the Article 23(1) of the BFL. Under that mechanism, the government shall submit to the parliament, within 30 days, a correction plan containing the necessary measures to ensure compliance with the ‘golden rule’. The correction plan favours the adoption of measures reduction of public expenditure, as well as the distribution of adjustment between the subsectors of general government (Article 23(4)). The new BFL reinforced the rules of transparency and accountability, once it established three specific duties. First, the duty of disclosure, which under Article 73 requires the government to create an electronic platform on a public and universal access website, in which the information on the programmes of the central government and social security subsectors, fiscal policy objectives, budgets and general government sector accounts is simply and easily accessed by the public. Second, the duty of information under Article 74. Third, the special duty of information to political control, which under Article 75 requires the government to make available to the parliament all the necessary data to enable it to monitor and effectively control the execution of the State Budget). According to Article 106(1) and (2) CPR, [t]he Budget Law shall be annually drawn up, organised, put to the vote and implemented in accordance with the applicable framework law, which shall include the regime governing the drawing up and

134 As set out in Council Directive 2011/85/EU of 8 November 2011 laying down requirements for the budgetary frameworks of the Member States and in Regulation (EU) No 473/2013 of the European Parliament and of the Council of 21 May 2013, laying down common provisions for the monitoring and evaluation of the draft budgetary plans and the correction of the excessive deficit of the Member States of the euro area. 135 Published in Diário da República, First series, No 201, of 19 October 2011. 136 For more information about the Council, consult its Statutes, approved by Law No 54/2011 of 19 October of 2011, as amended by Art 187 of the Law No 82-B/2014 of 31 December, available in English at www.cfp.pt/wp-content/ uploads/2015/01/Statutes-2014.pdf, and also its website: www.cfp.pt/about-us/cfp-and-europe/?lang=en.

Portugal  579 execution of the budgets of autonomous funds and departments” and “shall be presented and put to the vote within the time limits set by law, and the law shall lay down the procedures to be adopted when those time limits cannot be met.

The parliament has the competence to approve the State Budget upon the submission of drafts by the government (Article 161(g) CPR), which has the competence to execute it (Article 199(b) CPR). According to Article 107 CPR, [t]he Budget’s execution shall be scrutinised by the Court of Auditors and the Assembly of the Republic. Following receipt of an opinion issued by the Court of Auditors, the Assembly of the Republic shall consider the General State Accounts, including the social security accounts, and shall put them to the vote.

The Court of Auditors is the senior organ for the scrutiny of the legality of public expenditure and judging the accounts, which the law requires to be submitted to it. It is fully independent of the government and the parliament. It particularly it has the competence to (i) give an opinion on the General State Accounts, including the social security accounts; (ii) give an opinion on the accounts of the Azores and Madeira Autonomous Regions; (iii) enforce liability for financial infractions, as laid down by law; (iv) exercise the other competences allocated to it by law (Article 214 CPR). The parliament’s Budgetary Technical Support Unit, created in 2006, is competent to monitor budgetary execution and to analyse revisions to the stability and growth programme.137

V.  Resulting Relationship between EMU Related Law and National Law The impact of EMU related law on national law occurs at several levels. First, the creation of EMU competences at EU level had some constitutional consequences. As mentioned above,138 the Treaty of Maastricht, which included the possibility of the creation of an EMU, led to a constitutional revision in 1992. In 1997, the inclusion of referenda on questions related to Portugal’s participation in international organisations (except peace treaties and treaties rectifying borders) was introduced into the CPR. Subsequently, in 2005, Article 295 CPR was introduced, which expressly permits ‘the possibility of calling and holding referenda on the approval of treaties concerning the construction and deepening of the European Union’, and this includes EMU matters. Nevertheless, this provision has never been applied. In the recent Portuguese constitutional history, the parliament proposed two referenda concerning EU Treaties – the Treaty of Amsterdam and the Treaty establishing a Constitution for Europe. However, neither of them took place because the PCC deemed the questions unconstitutional. It is to be noted that they did not concern any specific questions on economic and fiscal issues. Secondly, the EMU related law had a huge impact on national law. As we have already highlighted, the Portuguese BFL has been amended several times. This was in order to align it with the EMU related law, especially the new rules on national budgets. For instance, due to the European



137 For 138 See

more information concerning this entity, see www.en.parlamento.pt/StateBudgetPublicAccounts/UTAO.htm. above II.C.

580  Ana Maria Guerra Martins, Joana de Sousa Loureiro Semester, it was necessary to discuss the State Budget with Brussels before it was submitted to the parliament, which changed the Portuguese budgetary calendar. The TSGC also led to an amendment of the Portuguese BFL, as we have already pointed out. Thirdly, during the three-year adjustment programme with the EC, the ECB, and the IMF – the so-called FAP – Portugal had to introduce many restrictions either into its State Budget Laws or into other laws. The PCC invalidated some of them, and consequently, the government had to negotiate other measures with the troika. Thus, domestic law was not only influenced by the EMU related law, but it also imposed some limits to EU law. To conclude, one has to underline that the CJEU case law on EMU matters, during the public debt crisis, did not significantly influence national law or the case law of the domestic courts, including the PCC. In fact, the CJEU delivered three preliminary rulings,139 during the economic and financial crisis – in 2012, 2013 and 2014 – which were all requested by the Oporto Labour Court (Tribunal do Trabalho do Porto). This court considered that some austerity measures violated certain fundamental rights enshrined in the Charter on Fundamental Rights on the EU. The CJEU, invoking its settled jurisprudence on internal matters, consistently declared its lack of jurisdiction to answer the referred questions.140

References F Alves Correia, Justiça Constitucional (Coimbra, Almedina, 2016). AP Antunes ‘Breves Notas ao Acórdão do Tribunal Constitucional N.º 187/2013 quanto à contribuição extraordinária de solidariedade’ (2014) 2 E-Publica, Revista Electrónica de Direito Público. C Blanco de Morais, ‘As metamorfoses do semipresidencialismo português’ (2016) 22 Revista Jurídica. C Blanco de Morais, Justiça Constitucional 2, 2nd edn (Coimbra, Coimbra Editora, 2011). R Branco ‘Ou sofrem todos ou há moralidade’: Breves notas sobre a fundamentação do Acórdão do Tribunal Constitucional no. 353/12, de 5 de Julho’ in J Miranda et al, Estudos em Homenagem a Miguel Galvão Teles (Coimbra, Almedina, 2012). V Canas ‘Constituição prima facie: igualdade, proporcionalidade, confiança aplicados ao ‘corte’ de pensões’ (2014) 1 E-Pública – Revista Electrónica de Direito Público. V Canas, ‘Sistema semi-presidencial’ (1998) 1st Suplement Dicionário Jurídico da Administração Pública. G Canotilho, Direito Constitucional e Teoria da Constituição, 7th edn (Coimbra, Almedina, 2003). G Canotilho and V Moreira, Fundamentos da Constituição (Coimbra, Coimbra editora, 1991). G Canotilho and V Moreira, Os poderes do Presidente da República (Coimbra, Coimbra editora 1991). M Canotilho, T Violante and R Lanceiro ‘Austerity Measures under Judicial Scrutiny: The Portuguese Constitutional Case Law’ (2015) European Constitutional Law Review. A Cavaco Silva, ‘Portugal and the Future of the European Union’ (2018) xxiv (II), The Brown Journal of Foreign Affairs. R Cisotta and D Gallo, ‘The Portuguese Constitutional Court Case Law on Austerity Measures: A reappraisal’ (2014) Working Paper 4 LUISS Guido Carli – Dipartimento di Giurisprudenza. N da Costa Cabral ‘Convergência do Regime de Proteção Social da Função Pública com o regime geral da Segurança Social’ (2013) 6 Finanças Públicas e Direito Fiscal.

139 CJEU, Order of 7/3/2013, C-128/12, Sindicato dos Bancários do Norte and Others v. BPN – Banco Português de Negócios, ECLI:EU:C:2013:149; ECJ, Order of 26/6/2013, C-264/12, Sindicato Nacional dos Profissionais de Seguros e Afins and Fidelidade Mundial – Companhia de Seguros SA (‘Fidelidade Mundial’), ECLI:EU:C:2014:2036; ECJ, Order of 21/10/2014, C-665/13, Sindicato Nacional dos Profissionais de Seguros e Afins and Via Directa – Companhia de Seguros SA (‘Via Directa’), ECLI:EU:C:2014:2327. 140 For a critical comment on these three cases, see Claire Kilpatrick, ‘On the Rule of Law and Economic Emergency: The Degradation of Basic Legal Values in Portugal’ (2015) Oxford Journal of Legal Studies, 24ff; Pereira Coutinho Francisco, ‘Austerity on the loose in Portugal …’, E-107ff.

Portugal  581 P Craig and M Markakis, ‘EMU Reform’ in F Amtenbrink, C Herrmann (eds), The EU Law of Economic and Monetary Union (OUP 2019 forthcoming). Europe – Feasibility Study, adopted by the Steering Committee for Human Rights (CDDH) on 11 December 2015, Council of Europe, 2016. European Commission, COM(2017) 291, Reflection paper on the deepening of the economic and monetary union. European Commission, COM (2017)822 Communication on new budgetary instruments for a stable euro area within the Union framework. European Commission, COM (2018) 823 Communication on a European Minister of Economy and Finance. European Commission, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States. European Commission, COM (2017)826 Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006. European Commission, COM (2017)827 Proposal for a Council Regulation on the establishment of the European Monetary Fund. European Parliament resolution of 16 February 2017 on budgetary capacity for the euro area (2015/2344(INI)). J Ferreira do Amaral, A reserva de soberania e o futuro de Portugal, 27 March 2017, available at www. abrilabril.pt/reserva-de-soberania-e-o-futuro-de-portugal. J Ferreira do Amaral, Porque devemos sair do euro – o divórcio necessário para tirar Portugal da crise, (Lisbon, Lua de Papel, 2013). G Fonseca, ‘Anotação ao Acórdão no. 396/11 do Tribunal Constitucional’ (2011) 6 Revista de Direito Público. L Ginsborg ‘The impact of the economic crisis on human rights in Europe and the accountability of international institutions’ (2017) 1 Global Campus Human Rights Journal. AM Guerra Martins, ‘A Portuguese Perspective of the Accession on the European Union to the European Convention of Human Rights’ in J Iliopoulos-Strangas, V Pereira da Silva and M Potacs (eds), The Accession of the European Union to the ECHR (Baden-Baden, Nomos, 2013). AM Guerra Martins, ‘La Constitution portugaise: Une Constitution inflationniste’ in G Amato et al, The Constitutional Revision in Today’s Europe / La révision constitutionnelle dans l’Europe d’aujourd’hui (London, Esperia Pub, 2002). AM Guerra Martins, Manual de Direito da União Europeia (Lisbon, Almedina, 2017). AM Guerra Martins, ‘Portugal’ in Stefan Griller et al (eds), National Constitutions and EU Integration (Oxford, Hart Publishing, 2020 forthcoming). AM Guerra Martins, ‘The Portuguese Semi-Presidential System – About Law “In the Books” and Law “In Action”’(2006) European Constitutional Law Review, 2, 1, 81–100. AM Guerra Martins and M Prata Roque, ‘Chapter 18 – Universality and Binding Effect of Human Rights from a Portuguese Perspective’ in R Arnold (ed), The Universalism of Human Rights (Dordrecht, Springer, 2013). AM Guerra Martins, ‘Constitutional Judge, Social Rights and Public Debt Crisis: The Portuguese Constitutional Case Law’ (2015) 22, 5 MJ. MI Jalles, Implications juridico-constitutionnelles de l’adhésion aux Communautés européennes – Le cas du Portugal (Brussels, Bruylant,1981). MI Jalles, ‘Primado do Direito Comunitário sobre o Direito nacional dos Estados membros’ (1980) Documentação e Direito Comparado. C Kilpatrick, ‘On the Rule of Law and Economic Emergency: The Degradation of Basic Legal Values in Portugal’ (2015) Oxford Journal of Legal Studies, 24ff. JC Loureiro, ‘Contribuição de sustentabilidade § companhia – linhas para uma discussão constitucional’. JC Loureiro ‘Sobre a (in)constitucionalidade do regime proposto para a redução dos montantes de pensões de velhice da Caixa Geral de Depósitos’, Website of the University of Coimbra, 2013, http://apps.uc.pt/ mypage/files/fd_loureiro/563. R Medeiros, A Constituição Portuguesa num Contexto Global (Lisbon, UCP, 2015). J Melo Alexandrino ‘Jurisprudência da Crise. Das Questões Prévias às Perplexidades’ in G A Ribeiro and L P Coutinho, O Tribunal Constitucional e a crise – ensaios críticos (Coimbra, Almedina, 2014). J Miranda, ‘Acabar com o frenesim constitucional’ in Nos 25 anos da Constituição da República Portuguesa de 1976 (Lisbon, AAFDL, 2001).

582  Ana Maria Guerra Martins, Joana de Sousa Loureiro J Miranda, Da Revolução à Constituição (Cascais, Principia, 2015). J Miranda ‘Decisões políticas: aprovação, abstenção e rejeição no momento constituinte de 1976’ (2000) 46 20 anos da Constituição de 1976 – Studia Iuridica. J Miranda, Manual de Direito Constitucional, I, 2,10th edn (Coimbra, Coimbra Editora, 2014). J Miranda, Manual de Direito Constitucional III, 6th edn (Coimbra, Coimbra Editora, 2010). J Miranda, Manual de Direito Constitucional VI, 4th edn. (Coimbra, Coimbra Editora 2013). J Miranda ‘O Direito Constitucional Português da Integração Europeia – Alguns Aspectos’, (2001) Nos 25 Anos da Constituição da República Portuguesa de 1976. B de Morais, ‘A sindicabilidade do direito da Unão Europeia pelo Tribunal Constitucional Português’, Estudos em Homenagem ao Prof. Doutor Sérvulo Correia (Coimbra, Coimbra Editora, 2010). V Moreira, ‘A CRP e a União Europeia’ in Estudos em homenagem ao Conselheiro Presidente Rui Moura Ramos’ Vol I, (Coimbra, Almedina, 2016). A Moreira, ‘O regime: presidencialismo do Primeiro-Ministro’ in M Baptista Coelho (coord.), Portugal – O Sistema Político e Constitucional 1974/87 (Lisbon, ICSUL 1989). M Nogueira de Brito ‘Comentário ao Acórdão 353/2012 do Tribunal Constitucional’(2013) 1 Direito e Política. P Otero, Direito Constitucional Português – Identidade Constitucional, vol. I (Coimbra, Almedina, 2010). P Otero, Direito Constitucional Português – Organização do Poder Político vol. II, (Coimbra, Almedina, 2010). E Paz Ferreira, ‘A constituição económica e a união económica e monetária: da construção do socialismo ao credo monetarista’, Em torno da revisão do Tratado da União Europeia (Coimbra, Almedina, 1997). F Pereira Coutinho, ‘Austerity on the loose in Portugal: European Judicial restraint in times of crisis’ (2016) 8 (3) Perspectives of Federalism, E-124. L P Pereira Coutinho, ‘A “convergência das pensões” como questão política’(2014) 1 E-Pública – Revista Electrónica de Direito Público. F Pereira Coutinho ‘A natureza jurídica dos memorandos da «troika»’ (2013) 24/25 Themis. F L Pires, Teoria da Constituição de 1976. A transição dualista (Coimbra, 1988). M Rebelo de Sousa, O Sistema de Governo Português, 4th edn (Lisbon, AAFDL 1992), 14, 71. J Reis Novais, Em Defesa do Tribunal Constitucional – Resposta aos críticos (Coimbra, Almedina, 2014). J Reis Novais ‘O direito fundamental à pensão de reforma em situação de emergência financeira’(2014) 1 E-Pública – Revista Electrónica de Direito Público. J Reis Novais, Semipresidencialismo, Teoria do sistema de governos semipresidencial I (Coimbra, Almedina, 2007). C Queiroz, ‘A classificação das formas de governo. Em particular, o sistema de governo “semi-presidencial”’, Estudos em homenagem ao Prof. Doutor Armando Marques Guedes (Lisbon, Almedina 2004). M Salomon ‘Of Austerity, Human Rights and International institutions’ (2015) 21 European Law Review. AC Santos and CC Palma ‘O Acórdão do Tribunal Constitucional No 353/12, de 5 de Julho’, 5 (2012) Revista de Finanças Públicas e Direito Fiscal. A Sousa Pinheiro, ‘Commentary to Article 109’ in P Otero, Comentário à Constituição Portuguesa, 25–35. A Sousa Pinheiro and M João de Brito Fernandes, Comentário à IV Revisão Constitucional (Lisboa, AAFDL,1999). F Teixeira dos Santos, ‘The Euro and Monetary Policy – The Perspective from Portugal’ University of South Carolina, December 15, 1997, Seminar on the ‘Global Impacts of European Monetary Union’ (Organized by the Richard L Walker Institute of International Studies), available at www.fep.up.pt/docentes/ftsantos/ interven%C3%A7%C3%B5es/Euro_and_monetary_policy.pdf. F Torres ‘A Convergência Monetária: Portugal e a União Europeia’(2006) Working Papers in Economics, Universidade de Aveiro, E/nº 39/2006. A Vitorino, ‘A adesão de Portugal Comunidades Europeias’ (1984) 3 Estudos de Direito Público.

24 Romania DR MIHAELA VRABIE

Abstract: This chapter aims to explain the Romanian constitutional setup, elaborating on the status of European Union (EU) law and Economic and Monetary Union (EMU)-related law in the Romanian legal system, with specific emphasis on the decisions of the Constitutional Court of Romania on EMU-related law. This contribution also outlines possible constitutional obstacles to furthering economic and monetary integration in the EU. Romania is not yet a member of the eurozone, but retains the status of a Member State with a derogation. However, in the process of joining the eurozone, Romania, as a non-eurozone Member State, has signed the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG), choosing to be bound by Titles III (Fiscal Compact) and IV in their entirety, joining a common effort towards a deeper integration. The Romanian legal system enshrines a set of rules and principles imposed by EMU-related law, designed to strengthen fiscal discipline, but these rules and principles are only provided for by ordinary laws, not by constitutional provisions. The main weakness of the legal framework implementing EMU-related law in Romania derives from the fact that all such rules are easily amendable upon approval or rectification of annual budgets or by any other derogatory provisions of other ordinary laws. The Romanian Constitution is yet to be amended to include fiscal-budgetary discipline rules, although in 2011 a constitutional amendment procedure concerning the inclusion of the balanced budget rule was initiated. In this context, EMU law had barely any impact on the Constitution of Romania or on constitutionality control exercised by the Constitutional Court. This is especially the case as the Constitutional Court currently considers that it lacks jurisdiction to review the constitutionality of national legislation based on the rules of the fiscal-budgetary discipline enshrined in national law or EMU-related law, although the Constitutional Court acknowledged, on the grounds of Article 148 (2)–(4) of the Constitution, the constitutional relevance of EU law, under certain conditions. This chapter examines, thus, the constitutional foundations of Romanian EU membership, the Romanian financial constitutional provisions and the interaction between EU law (EMU law included) and national law, especially in the context of the constitutionality control exercised by the Constitutional Court. It also analyses the national laws implementing EMU-related law aiming to limit the public debt and deficits, include a balanced budget rule, and to institutionalise a control and corrective mechanism. These laws are formally compliant with EMU-related law. However, the effectiveness of these rules is weakened by the instability of ordinary laws that implement these rules and by the lack of constitutionality control based on the balanced budget rule.

584  Dr Mihaela Vrabie Key words: Economic and Monetary Union (EMU), eurozone, EU membership, EU integration, EMU membership, EMU integration, economic and financial integration, constitutional system, constitutional culture, constitutional amendment, Europeanisation, EU law, rule of law, sovereignty, transfer of powers, single currency, adoption of the euro, constitutional foundations of EMU, financial stability, financial constitutionalism, primacy of EU law, EU integration clause, constitutional identity, balanced budget rule, fiscal and budgetary responsibility, constitutionality control, convergence criteria for adopting the euro.

I.  Main Characteristics of the National Constitutional System The revolution that took place in Romania in December 1989 removed the power structures of the dictatorial communist regime. A new Constitution was necessary to provide a legal framework allowing the evolution of the new governmental power structures towards the rule of law, democracy and fundamental values. Since the previous Constitutions (of 1866 and 1923) were related to the monarchy, the post-communist Constitution of Romania broke away from the pre-communist constitutional traditions of the country. The current Constitution of Romania1 (the Constitution) was adopted in 1991, after a national referendum and was amended in 2003, in light of the future accession to the European Union (EU) and the North Atlantic Treaty Organisation. Four different constitutional revision initiatives (2011, 2014, 2016, 2019) have followed since 2003.2 However none of them has been adopted. The most important constitutional principles in the Constitution are: the republican form of government, the separation of powers, the rule of law, political pluralism, the bicameral structure of parliament, democracy and freedom, human dignity, inviolability and inalienability of fundamental rights, and the principle of consulting the people by national referendum regarding constitutional revision projects and measures of significant importance to the national interest.3 According to Article 1 of the Constitution, Romania is a sovereign, independent, unitary, and democratic state, governed by the rule of law, having justice and fundamental rights as supreme values, based on the principle of separation of powers. The revised Article 1(4) of the Constitution, which clearly provides for the principle of the separation of powers into legislative, executive, and judicial, was included with the 2003 revision of the Constitution, in direct connection with the requirement of balance of powers, which must be achieved in the framework of a constitutional democracy.4 The constitutional system established by the 1991 Constitution, as revised in 2003, creates a semi-presidential political framework whereby the responsibilities of the parliament, the president and the government are connected and interrelated. The legislative power is bi-cameral, formed by the Chamber of Deputies and the Senate, which are directly elected for a four-year term. The executive power of Romania is dualist, divided between the president and the government. The president is directly elected by the people for a five-year mandate and the prime minister is invested by the president after receiving the parliament’s vote of confidence. 1 The Constitution of Romania is available in English at www.presidency.ro/en/the-constitution-of-romania. 2 The constitutional revision projects are available at www.cdep.ro/pls/proiecte/upl_pck2015.lista?cam=2 and www. senat.ro/legis/lista.aspx#ListaDocumente. 3 Ioan Muraru, Elena Simina Tănăsescu, Drept constituțional și instituții politice (Constitutional law and political ­institutions), 14th edn, vol I, (Bucharest, CH Beck, 2011) 99. 4 Art 1(4), Constitution of Romania: ‘The State shall be organised based on the principle of the separation and balance of powers – legislative, executive, and judicial – within the framework of constitutional democracy.’

Romania  585 Chapter VI of the Constitution, concerning judicial authority, mentions courts of law, Public Ministry and the Superior Council of Magistracy, although only the courts of law are part of the judiciary.5 Article 126 (1) of the Constitution provides that justice shall be administered by the High Court of Cassation and Justice, and the other courts of law set up by law. The most important constitutional principles that govern the judicial power and the administration of justice in Romania are: legality,6 impartiality and equality,7 the presumption of innocence,8 and independence of the judges.9 The Constitutional Court of Romania (the Constitutional Court) is entrusted with interpretation of the Constitution and the constitutionality control of laws.10 It is a political and jurisdictional public authority, independent of the judiciary system and independent of any other public authority.11 It is composed of nine judges appointed for a period of nine years, three by the Chamber of Deputies, three by the Senate, and three by the president. The Constitutional Court has the power to adjudicate on the constitutionality of laws adopted by the parliament before their promulgation (following an objection of unconstitutionality raised by the President of Romania, one of the presidents of the two parliamentary chambers, the government, the High Court of Cassation and Justice, the Romanian Ombudsman, a group of at least 50 deputies or at least 25 senators, as well as ex officio on constitutional amendments). It may decide on the constitutionality of laws and government ordinances after they have entered into force (following an argument of unconstitutionality raised before a court of law or commercial arbitration tribunals, as well as ex officio by the courts, or raised directly by the Romanian Ombudsman). It adjudicates on the constitutionality of treaties or other international agreements (upon referral by one of the presidents of the two chambers of parliament, a group of at least 50 deputies or at least 25 senators) and on the constitutionality of the Standing Orders of parliament.12 The 2003 constitutional amendments have entrenched the autonomy of the Constitutional Court, the Superior Council of Magistracy and the Ombudsman, which acquired more prominent roles within the system.13 The 2003 amendments vested the Constitutional Court with new powers. These powers include the possibility of solving constitutional conflicts at the request of the President of Romania, one of the presidents of the two chambers of parliament, the prime minister, or of the president of the Superior Council of Magistracy,14 or the possibility of the Romanian Ombudsman to initiate a constitutional review by seising the Constitutional Court with a case arguing unconstitutionality.15 This constitutional architecture provides space for mutual control between the different state powers, in order to guarantee the rule of law and respect for the fundamental rights of the citizens. 5 Ioan Muraru, Elena Simina Tănăsescu, Drept constituțional și instituții politice (Constitutional law and political ­institutions), 13th edn, vol II, (Bucharest, CH Beck, 2009) 283. 6 Art 124(1), Constitution of Romania. 7 Art 124(2), ibid. 8 Art 23(11), ibid. 9 Art 124(3), ibid. 10 Arts 142–47, Constitution of Romania and Law no 47/1992, republished in Official Journal of Romania no 807/03.12.2010. 11 The Constitutional Court of Romania is not included in Ch VI (Judicial authority), Title III of the Constitution of Romania, which governs the judiciary system. It is included in a separate section – Title V of the Constitution of Romania (Constitutional Court). See also Ioan Muraru, Elena Simina Tănăsescu, Drept constituțional și instituții politice (Constitutional law and political institutions), 13th edn, vol II, (Bucharest, CH Beck, 2009) 261. 12 Art 146, Constitution of Romania. 13 Bogdan Iancu, ‘Romania – The Vagaries of International Grafts on Unsettled Constitutions’ in: A Albi and S Bardutzky (eds), National Constitutions in European and Global Governance: Democracy, Rights, the Rule of Law (Hague, TMC Asser Press, 2019) 1047, 1050. 14 Art 146(e), Constitution of Romania. 15 Art 146(d), ibid.

586  Dr Mihaela Vrabie In this context, many constitutional conflicts that led to government changes occurred between the parliament and the government,16 between the president and the parliament, or between the president and the prime minister.17 Furthermore, between 2017 and 2019, constitutional conflicts have occurred even between the judicial power, on one hand, and the legislative or executive power, on the other. These constitutional conflicts were solved by the Constitutional Court, which was called to act as a ‘constitutional arbiter’ and rule on 20 claims concerning constitutional conflicts from 2014 to 2019,18 13 of which concerned constitutional conflicts between the judicial power and the legislative/executive power. The critical constitutional developments concern some controversial decisions of the Constitutional Court having major impact on the work of the judiciary system.19 As a recent example, based on Decision no 685/07.11.201820 and Decision no 417/03.07.2019,21 many judgments delivered by the High Court of Cassation and Justice (HCCJ) in corruption cases will be re-examined, because the Constitutional Court found irregularities in the composition of panels of judges. These solutions were criticised even by some constitutional judges, who affirmed that by Decision no 417/03.07.2019, the Constitutional Court had intervened arbitrarily and without jurisdiction in the activity of the judiciary, breaching the principle of separation of powers and affecting judicial independence.22 Another critical development in the activity of the Constitutional Court relates to inconsistencies in applying the Constitution. In this context, Decisions no 137/201923 and no 2/201224 regarding the mechanism for cooperation and verification (MCV)25 are perhaps the most relevant. While in January 2012 the Constitutional Court held that Romania must apply the MCV and follow the recommendations established in this legal framework, as a member of the EU, seven years later, in March 2019, the same court ruled that the reports issued in the context of the MCV are not binding, having the legal status of mere recommendations. These recent developments in the activity of the Constitutional Court may weaken its credibility and may endanger the effectiveness of the constitutional system in ensuring the supremacy of the Constitution, the rule of law, the separation of powers and the independence of the judiciary.26 16 The parliament dismissed the government on 10 October 2019 with 238 votes. 17 See, as a recent example, Constitutional Court of Romania, Decision no 504/18.09.2019, published in Official Journal of Romania no 801/03.10.2019. 18 Decisions of the Romanian Constitutional Court are available in Romanian language at www.ccr.ro. 19 Constitutional Court of Romania, Decision no 51/16.02.2016, published in Official Journal of Romania no 190/14.03.2016, Decision no 22/18.01.2018, published in Official Journal of Romania no 177/26.02.2018. 20 Constitutional Court of Romania, Decision no 685/07.11.2018, published in Official Journal of Romania no 1021/29.11.2018), confirmed the existence of a constitutional conflict between parliament and the High Court of Cassation and Justice, generated by the fact that only four of the five members of the panels of five judges were appointed by lot. 21 Constitutional Court of Romania, Decision no 417/03.07.2019, published in Official Journal of Romania no 825/10.10.2019. Following this decision of the Constitutional Court, the High Court of Cassation and Justice decided to submit questions to the CJEU for a preliminary ruling, questioning the decision of the Constitutional Court under EU law. See also preliminary questions sent by the Romanian High Court of Cassation and Justice to the CJEU in Cases C-357/19, C-547/19. 22 See the separate dissenting opinion of constitutional judges Livia Stanciu and Elena-Simina Tănăsescu, in Decision no 417/03.07.2019 of the Constitutional Court, published in Official Journal of Romania no 825/10.10.2019. 23 Constitutional Court of Romania, Decision no 137/13.03.2019, published in Official Journal of Romania no 295/17.04.2019. 24 Constitutional Court of Romania, Decision no 2/11.01.2012, published in Official Journal of Romania no 131/23.02.2012. 25 The mechanism for cooperation and verification of progress in Romania to address specific benchmarks in the areas of judicial reform and the fight against corruption was established by European Commission Decision no 2006/928/EC of 13 December 2006, on the accession of Romania to the European Union in 2007. 26 See the separate dissenting opinion of constitutional judges Livia Stanciu and Elena-Simina Tănăsescu, from Decision no 417/03.07.2019 of the Constitutional Court, published in Official Journal of Romania no 825/10.10.2019.

Romania  587

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments Romania became a member of the EU on 1 January 2007 after the Accession Treaty to the European Union of Romania (Accession Treaty) was signed on 25 April 2005 in Luxembourg and ratified unanimously by the Romanian Parliament on 17 May 2005 with Law no 157/2005.27 The Accession Treaty was ratified in parliament without a referendum, as allowed by the amended constitutional provisions in 2003. Also, since public opinion in Romania was, in general, in favour of accession to the EU, the political decision-makers considered that such a referendum would have been a waste of time.28 The constitutional foundations for EU integration were included in the text of the Constitution by Law no 429/200329 on the revision of the Constitution. The 2003 amendment of the Constitution introduced Title VI, ‘Euro-Atlantic Integration’, consisting of Article 148 (Integration into the European Union) which contains the legal constitutional foundations of Romanian EU membership (EMU membership included) and Article 149 (Accession to the North Atlantic Treaty). Article 148 of the Constitution of Romania outlines, (1) Romania’s accession to the constituent treaties of the European Union, with a view to transferring certain powers to Community institutions, as well as to exercising in common with the other member states the abilities stipulated in such treaties, shall be carried out by means of a law adopted in the joint sitting of the Chamber of Deputies and the Senate, with a majority of two thirds of the number of deputies and senators. (2) As a result of the accession, the provisions of the constituent treaties of the European Union, as well as the other mandatory Community provisions shall take precedence over the contrary provisions of national law, in compliance with the provisions of the accession act. (3) The provisions of paragraphs (1) and (2) shall also apply accordingly for the accession to the acts amending the constituent treaties of the European Union. (4) The Parliament, the President of Romania, the Government, and the judicial authority shall ­guarantee that the obligations resulting from the accession act and from the provisions of paragraph (2) are implemented. (5) The Government shall send to the two Chambers of the Parliament the projects of the mandatory acts before they are submitted to the European Union institutions for approval.

Article 148(2) of the Constitution enshrines the primacy of EU law over national law, specifying that this will be achieved under the conditions resulting from the Accession Treaty. This addition is irrelevant as the Accession Treaty does not contain any details on the way EU law should be applied. Article 148(2) of the Constitution of Romania establishes an original view of the principle of primacy of EU law. Not all EU law, but only ‘the constitutive treaties’ and ‘the other mandatory Community provisions’ have primacy over national law and only with respect to their contrary provisions of national law. The term ‘national law’ used by Article 148(2) of the Constitution, that is superseded by contrary EU law, designates the broader category of all normative acts issued by the state authorities, not only the acts adopted by parliament. Regardless of the nuances added by the Constitution to the principle of primacy of EU law, its application is incumbent on all state 27 Published in Official Journal of Romania no 465/01.06.2005. The legislative procedure is available at www.cdep.ro/ pls/proiecte/upl_pck.proiect?idp=6308. 28 President Traian Basescu, declaration on April 2005, at www.9am.ro/stiri-revista-presei/Politica/9602/BasescuReferendumul-privind-ratificarea-Tratatului-de-aderare-la-UE-pierdere-de-timp.html. 29 Published in Official Journal of Romania no 758/29.10.2003.

588  Dr Mihaela Vrabie authorities. Even though the Constitution pays special attention to the primacy of EU law, this does not mean that the other effects of EU law are not recognised in Romanian law.30 Prior to its 2003 revision, the Constitution had only general provisions regarding the ratification of international treaties (Article 11) and did not contain provisions regarding the transfer of state attributions/powers to international organisations or regarding the joint exercise with other states of specific powers deriving from state sovereignty. Since 2003 the Constitution provides for two different treaty ratification procedures: a general one, governed by Article 11 of the Constitution for treaties under international law and a special one, governed by Article 148 of the Constitution, applicable only to the EU integration and the ratification of EU Treaties. The two procedures differ only with regard to the parliamentary majority required for the ratification. The referendum is not a compulsory condition for these two ratification procedures. Article 148 was perceived in 2003 as a sufficient legal base for Romania’s accession to the EU. The current Constitution does not contain any specific provisions on EMU membership or other EMU aspects, except for Article 137(2), which establishes that under the conditions of Romania’s accession to the EU, the adoption of the euro can be recognised through organic law.31 The Romanian constitutional order does not treat EMU membership or EMU-related issues as genuinely constitutional issues. According to the Accession Treaty, Romania has not opted out from the single currency. Therefore, it is under an obligation to adopt the single currency as soon as all the convergence criteria for adoption of the euro are fulfilled. Since 2007, Romania has tried to reach the nominal convergence criteria for adopting the euro. However, the current state of the assessment process of the nominal and real convergence to the eurozone shows the need for Romania to implement further measures to adopt the single currency. While in the process of joining the eurozone, as a non-eurozone Member State, in March 2012 Romania signed the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG).32 While Romania had the choice of partial and limited application of the TSCG, it chose to be bound by the Titles III (Fiscal Compact) and IV in their entirety, joining a common effort towards a deeper integration.33 From a constitutional law perspective, the TSCG is an international treaty separate from EU law and ratified by the parliament by Law no 83/2012.34 According to Article 11 of the Constitution, Romania is bound by the obligations deriving from the international treaties ratified by the parliament, and international treaties ratified by parliament are part of national law. The same provision sets forth that, if an international treaty comprises provisions contrary to the Constitution, its ratification shall only take place after the amendment of the Constitution. Thus, according to Article 11 of the Constitution, Romania is bound by the obligations resulting from the TSCG, which is part of national law, being ratified by the Romanian Parliament. However, it must be pointed out that, since in the Romanian legal order the TSCG is an international treaty outside EU law, it is governed only by Article 11 of the Constitution and not by Article 148 of the Constitution, which governs the EU integration, the ratification of EU Treaties and the interaction between national law and EU law.35 This was recognised also by the 30 Ioan Muraru, Elena Simina Tănăsescu, Constituția României – Comentariu pe articole (The Romanian Constitution annotated) (Bucharest, CH Beck, 2008) 1440–41. 31 Art 137(2), Constitution of Romania: ‘The national currency is the Leu, with its subdivision, the Ban. Under the conditions of Romania’s accession to the European Union, the circulation and replacement of the national currency by that of the European Union may be acknowledged by means of an organic law.’ 32 Ratified by the parliament by Law no 83/2012. 33 Declaration of Romania to be bound by the entire TSCG is available at https://www.consilium.europa.eu/en/ documents-publications/treaties-agreements/ratification/?id=2012008&partyid=RO&doclanguage=en. 34 Published in the Official Journal of Romania no 410/20.06.2012. 35 Constitution of Romania establishes the rules applicable to international treaties in Art 11, whereas the rules ­applicable to EU law are set by Art 148 of the Constitution.

Romania  589 Constitutional Court in Decision no 127/06.03.2019, where it held that TSCG is not formally part of European Union law, being an intergovernmental instrument concluded pursuant Article 20 TEU as a form of enhanced cooperation within the EU’s non-exclusive competences.36 The main difference between the rules applicable to EU law and international law in Romanian legal system is that only EU law enjoys primacy over contrary national law (according to Article 148 of the Constitution). According to Article 20 of the Constitution, only international treaties (ratified by parliament) relating to fundamental human rights have priority over contrary national law, unless the Constitution of Romania or the national law contain more favourable provisions. Another significant difference between the rules applicable to EU law and international law in Romanian legal system relates to their relevance for constitutional review of national law. In particular, the Constitutional Court acknowledged that, according to Article 148(2) and (4) of the Constitution, EU law provisions can be used as ‘interposed norms’ that can be integrated in the standard of review for the control of constitutionality of national legislation, if the EU law provision is sufficiently clear, precise and unconditional and has a certain level of constitutional relevance,37 while other international law rules are situated under the constitutional provisions and cannot be so used.38 In Romania’s legal system, international treaties and national law enjoy the same legal force, with the exception of human rights rules, where, in case of inconsistency between international treaties on human rights and national law, the former take precedence. The TSCG was implemented by Law no 377/2013 amending Law no 69/2010 on Fiscal Budgetary Responsibility. Law no 377/2013 is an ordinary law which influences the stability and permanent character of its provisions (see section III). According to the 2018 Commission Convergence Report on the progress made by the Member States in fulfilling their obligations regarding the achievement of the EMU, Romania met only one of the convergence criteria for adoption of the euro, which was the criterion on public finances (Romania was not, at that time, subject to an excessive deficit procedure). According to the same report, all other convergence criteria (price stability, convergence of longterm interest rates, and legislation in Romania) are not fulfilled. In the light of its assessment on legal compatibility, the European Commission found that legislation in Romania (in particular Law no 312/2004 on the Statute of the National Bank of Romania) is not fully compatible with the duty under Article 131 TFEU. The incompatibilities concern the independence of the central bank, the prohibition of monetary financing, and central bank integration into the European System of Central Banks (ESCB) at the time of euro adoption.39 Two years later, in 2020, the conclusions of the European Commission were different. According to the 2020 Convergence Report of the European Commission, Romania does not fulfil any of conditions for the adoption of the euro. The European Commission found, in the aforementioned report, that Romania failed to meet the criterion on public finances because on 4 April 2020, the Council opened an excessive deficit procedure for Romania, based on the fact that the general government deficit increased from 2.9% in 2018 to 4.3% in 2019, driven by increases in current expenditures and a rebound of capital spending from the recordlow levels of the previous years. In May 2019, the Romanian government adopted Convergence Programme 2019–22, based on Council Regulation (EC) No 1466/97 on the strengthening of the surveillance of 36 Constitutional Court of Romania, Decision no 127/06.03.2019, published in Official Journal of Romania no 189/08.03.2019, paras 85 and 86. 37 Constitutional Court of Romania, Decision no 668/18.05.2011, published in Official Journal of Romania no 487/08.07.2011. 38 Muraru, Tănăsescu, Drept constituțional și instituții politice (2011) 33. 39 2018 Convergence Report of the European Commission, p. 17-20, available at https://ec.europa.eu/info/sites/info/ files/economy-finance/ip078_en.pdf.

590  Dr Mihaela Vrabie budgetary positions and the surveillance and coordination of economic policies. According to the Programme, through persistent efforts and solidarity of social forces, there are chances that by 2024 Romania would be able to meet the fundamental requirements for the adoption of the euro. This national Convergence Programme 2019–22 also shows that: –– On the horizon 2019-2021, fiscal-budgetary policy continues to support directly economic growth; –– Romania maintains its commitment to join the eurozone and in 2018 has taken steps in this regard. By Emergency Ordinance of the Government no 24/2018 was set up the National Commission for the national plan for the adoption of euro; –– At the end of December 2018, the National Commission completed the Report on the national plan for the adoption of euro and the National plan for the adoption of euro, which were adopted by the Government on 30 January 2019; –– As an objective, Romania has undertaken the adoption euro in 2024; –– The national plan for the adoption of euro emphasises that in order to reach the objective for the adoption of euro in 2024, concerted action is needed in strategic areas aimed at modernization and increasing the robustness of the Romanian economy, such as: the sustainable fulfilment of the nominal convergence criteria and the improvement of real convergence; budgetary consolidation by reducing the structural budget deficit; achieving a robust economic growth based on investments; implementation of the structural reforms; development of macro-prudential monetary and fiscal-budgetary policies; amplification of investments in priority areas, respectively in education, health and transport infrastructure; improving the convergence and robustness of the banking and non-banking financial system; flexibilization of the labour market; development of sectorial, ­industrial and small business policies and means to improve competitiveness.40

According to the National Bank of Romania, In the legal field, the obligations to be fulfilled for the achievement of EMU mainly concern the ­independence of the National Bank and its legal integration into the Eurosystem. For this purpose, the following aspects are examined: independence of the National Bank: functional, institutional, personal and financial; confidentiality (the obligation to maintain professional secrecy); the ban on monetary financing; the prohibition on the privileged access of the public sector to financial institutions; legal integration of the National Bank in the Eurosystem.41

From a constitutional viewpoint, EMU-related issues are considered EU issues or EU law, having primacy over national contrary law, as provided by Article 148 of the Constitution, only if the EMU-related issues are enshrined in EU law with mandatory legal force. This rule was clearly expressed in Decision no 127/06.03.2019.42 In that decision the Court held that, although relevant for the proper functioning of the EU, the TSCG43 is an intergovernmental instrument that is not formally part of EU law, being only a form of enhanced cooperation in the area of EMU, leaving Article 148 of the Constitution inapplicable to the TSCG. Thus, the Constitutional Court refused to use the provisions of the TSCG as interposed norms in the control of constitutionality of the law of the state budget for 2019, pointing out that only EU law 40 The Convergence Programme 2019–22, adopted by the Romanian Government in May 2019, available at: http:// discutii.mfinante.ro/static/10/Mfp/resurse/program_convergenta_editia2019_2022.pdf and available at https://ec.europa. eu/info/sites/info/files/2019-european-semester-convergence-programme-romania_ro.pdf (author’s translation from Romanian). 41 National Bank of Romania, Criteria for legal convergence, available at www.bnr.ro/Criteriile-de-convergentajuridica-1248.aspx. 42 Romanian Constitutional Court, Decision no 127/06.03.2019, published in Official Journal of Romania no 189/08.03.2019. 43 Ratified by Law no 83/2012, published in Official Journal of Romania no 410/20.06.2012.

Romania  591 provisions can serve as ‘interposed norms’ that can be integrated in the standard of review for the control of constitutionality of national legislation with Article 148 of the Constitution.44 The only provisions related to financial constitutionalism that can be found in the 1991 Constitution of Romania, as revised in 2003, are Article 138 (National public budget), stating that ‘no budgetary spending can be approved without establishing the financing source’, Article 56 (Financial Contributions), Article 137 (Financial system), and Article 139 (Taxes and other contributions). Other relevant constitutional provisions are the institutional provisions concerning the constitutional standing of the Court of Auditors (Article 140) and of the Economic and Social Council (Article 141). These constitutional provisions establish the principle of legality of taxes, regulate the national currency, the possibility of introducing the euro, the structure of the budgetary system, as well as the functioning of the most important public institution for controlling the management and use of public funds, the Court of Auditors. These provisions, together with the rest of Title IV of the Constitution (Economy and public finances) and the constitutional provisions setting out economic rights, form the ‘Economic Constitution’, as a set of substantive and institutional rules regulating the state involvement in the economic field.45 In 2011, a constitutional revision was initiated which envisaged, among others, a constitutional amendment concerning the inclusion of the balanced budget rule. Although the Constitutional Court constitutionally reviewed that proposal and issued a favourable opinion,46 the constitutional amendment was rejected in parliament due to low political support.47 In the end, the balanced budget rule imposed by the TSCG was implemented in the Romanian legal system by national ordinary law – Law no 377/201348 amending Law no 69/2010 on Fiscal Budgetary Responsibility. Therefore, the current Constitution of Romania does not contain a balanced budget rule or any principles, guidelines or institutional design directly related to the EMU, except for the general EU membership clause (Article 148) and the clause on the introduction of the euro (Article 137). Also, the current provisions of the Constitution of Romania do not include rules regarding an independent budgetary council and this aspect has not been taken into consideration by the constitutional reform proposals. The Fiscal Council was established in 2010 by Law no 69/2010 on Fiscal Budgetary Responsibility,49 as part of euro-crisis law in Romania, but is not governed by constitutional provisions. It follows that adoption and entry into force of the EMU instruments are not reflected in the Constitution of Romania. These EMU rules are implemented in Romania through other legislative measures that fall into the sphere of financial law (eg, by ordinary law, in the case of TSCG). As such they are regarded in the constitutional culture of Romania as matters lacking constitutional relevance. This view is very well illustrated in the already mentioned Decision no 127/06.03.2019 of the Constitutional Court.50 Currently, there are no debates in Romania regarding EMU-related

44 For more details regarding Decision no 127/06.03.2019 of the Constitutional Court of Romania, published in Official Journal of Romania no 189/08.03.2019, see section IV. 45 Simona Gherghina, Drept financiar public (Financial Public Law) (Bucharest, CH Beck, 2019) 3. 46 Constitutional Court of Romania, Decision no 799/2011, published in Official Journal of Romania no 440/23.06.2011. 47 Legislative proposal on 2011 constitutional amendment, file Pl-x 492/2011, is available in Romanian at: www.cdep. ro/proiecte/2011/400/90/2/pl492.pdf. 48 Published in Official Journal of Romania no 826/23.12.2013. 49 Republished in Official Journal of Romania no 330/14.05.2015. 50 Constitutional Court of Romania, Decision no 127/06.03.2019, published in Official Journal of Romania no 189/08.03.2019. In the same decision, the Court also held that it does not have the power to verify the compliance of

592  Dr Mihaela Vrabie constitutional amendments. This is unlikely to become a priority in the near future, since the prospective Romanian accession to the eurozone will not require constitutional amendments.

III.  Constitutional Obstacles to EMU Integration The crisis management measures within and outside EU law aiming to strengthen the fiscalbudgetary policies (as the TSCG) were implemented in Romania entirely through ordinary laws and not by constitutional amendments. There are three types of laws recognised by the Romanian legal system: constitutional laws, organic laws and ordinary laws. The amendment of the Constitution is made by constitutional laws, which are adopted by the Chamber of Deputies and the Senate by a majority of at least two thirds of the members of each chamber of parliament and are subject to a subsequent approval by referendum.51 The organic laws are adopted by absolute majority – the majority of all members of each chamber of parliament, whilst the ordinary laws are passed by the majority vote of the members present in each chamber of parliament (simple majority).52 The crisis management measures implemented in Romania were not among the areas that must be regulated through organic laws, according to Article 73(3) of the Constitution. As a result, the choice of the legislative bodies was to implement these measures through ordinary legislation. Also, the government implemented these measures by emergency ordinance procedure, according to Article 115(4)–(5) of the Constitution. This legislative choice implied a shorter legislative procedure but it also proved to be more inefficient due to the fact that in Romania, ordinary laws have the same legal status and as a consequence, they can be easily amended by other ordinary laws in the context of adopting the annual budgets. The legal force of the provisions implementing crisis management measures in Romania makes them volatile and exposed to instability, especially in the context of political changes. Before this new set of rules, some provisions concerning sustainability of public finances were found in Law no 500/2002 on public finances providing rules applicable to central government budgets and in Law no 273/2006 on local public finances, applicable to local budgets. The new provisions aiming to strengthen fiscal and budgetary discipline were not introduced in these two already existing laws, but in a new Law no 69/2010 on fiscal-budgetary responsibility. All these acts have been further amended since 2010. One of the most important amendments was the implementation of the TSCG provisions, which was made by Law no 377/201353 which amended the Law no 69/2010 on fiscal-budgetary responsibility. Law no 69/2010, as further amended, provides additional details with regard to the preparatory activities for the state budget and adds a mandatory approval by the parliament of a three-year fiscal and budgetary strategy and of the annual targets within this strategy as the basis the financial ‘forecasts’ of the European Commission with those of the government. Regarding the EU recommendations adopted in the procedure provided for by Art 121 TFEU, the Constitutional Court held that, although EU recommendations lack mandatory force, these are part of a procedure to ensure the proper functioning of the Economic and Monetary Union and to monitor the conformity of the economic policies of a Member State with the general guidelines of the economic policies of the Member States and of the EU, but the problems identified in this procedure must be solved in accordance with the ways and means provided by the TFEU. For more details regarding Decision no 127/06.03.2019 of the Constitutional Court of Romania, published in Official Journal of Romania no 189/08.03.2019, see section IV. 51 Art 151, Constitution of Romania. 52 Art 76, ibid. 53 Law no 377/2013, which implemented TSCG, was published in Official Journal of Romania no 826/23.12.2013 and amended the Law no 69/2010 on fiscal-budgetary responsibility, published in Official Journal of Romania no 252/20.04.2010.

Romania  593 for drafting each year’s budget. Specific principles and rules relating to the budget execution were also introduced in the new law (such as limitations of acceptable budget rectifications or of the transfers allowed between the main expenditure lines of the budget). However, no limitation on the budget deficit were mentioned at that moment (2010). With regard to public debt obligations, the new law provided that one of the annual targets of the fiscal and budgetary strategy refers to the total amount of the government guarantees and another to the total amount of the loans that may be contracted by local authorities.54 Law no 69/2010 also established an independent Fiscal Council, a multiannual fiscal strategy, the obligation for the government to take into consideration the fiscal budgetary strategy, the responsibilities and sanctions. The balanced budget rule was introduced by the 2013 amendment55 of Law no 69/2010. All three laws are interrelated and establish the legal framework of the budgeting system in Romania. Law no 500/2002 and Law no 273/2006 set the general principles of state and local budgets formation, administration, elaboration, execution, actors involved and their responsibilities, whilst Law no 69/2010 establishes the medium and long-term fiscal discipline principles and the multiannual fiscal framework and spending ceilings. The public and the political debates on these laws did not include constitutional counter arguments or even EU law-related arguments. The legal change was perceived in a larger macroeconomic context as necessary legislative measures implementing crisis management economic rules. No significant public or academic debate took place regarding the adoption of measures safeguarding the financial stability. Even the Constitutional Court considered, in the context of reviewing the constitutionality of a law reducing budgetary expenses by reducing salaries, that economic fluctuations can become significant threats to national security. In that specific case, considering that there was a serious threat to economic stability, the Constitutional Court found that the government was entitled to take appropriate measures and one of these measures was reducing the amount of salaries/allowances by 25 per cent.56 Even though Article 3(2) TSCG provides clearly that the balanced budget rules shall take effect in national law through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes, Romania chose not to include the balanced budget rule in its Constitution, preferring the ordinary law procedure for implementing all crisis management measures (including balanced budget rule). This choice of the Romanian legislator to implement the balanced budget principle in an existing law that has no superior effect to other laws concerning public finances is subject to further scrutiny under Article 8 TSCG, which requires the inclusion of this principle at the constitutional level or at a similar level (supposedly not allowing for amendments by the annual budgetary laws). Although it includes general principles and rules for drafting central budgets and any subsequent amendment to them, Law no 69/2010 remains an ordinary law. That is, it may be revised or repealed by an ordinary or organic law. From a strictly technical perspective, any derogation from the principles and rules it provides may be adopted via a simple budget

54 Elena Simina Tănăsescu, Simona Gherghina, ‘Limitation on Government Debt and Deficits in Romania’ in F Morrison (ed), Fiscal Rules – Limits on Governmental Deficits and Debt, (Switzerland, Springer International Publishing, 2016) 241, 242. 55 Law no 377/2013, published in Official Journal of Romania no 826/ 23.12.2013. 56 Constitutional Court of Romania, Decision no 872/2010, published in Official Journal of Romania no 433/28.06.2010. The same arguments were held by the Constitutional Court of Romania in Decision no 1414/04.11.2009, published in the Official Journal of Romania no 796/23.11.2009.

594  Dr Mihaela Vrabie rectification law.57 It must be stressed that this legislative option was not chosen because of constitutional counter arguments or imbalance between the national prerogatives provided by the Constitution and the EU institutions. Not even the Constitutional Court was an obstacle to the introduction of the balanced budget rule in the constitutional provisions, when it reviewed, in 2011, the proposed amendment of the Constitution. In 2011, a constitutional revision which concerned the inclusion of the balanced budget rule was initiated. This amendment sought to constitutionally entrench the obligations undertaken under the Stability and Growth Pact, under Article 126 TFEU and Protocol no 12 on the excessive deficit procedure, annexed to the TEU and the TFEU (Protocol no 12). According to the proposed amendment of Article 138 (Financial policy), the new balanced budget rule provided that the state must avoid excessive public deficit. It also established that the budget deficit may not exceed 3 per cent of GDP and the public debt may not exceed 60 per cent of GDP’.58 Also relevant from the EMU perspective was another proposed constitutional amendment, which aimed to implement crisis management measures and to strengthen EMU. The proposed amendment of Article 138 of the Constitution (‘National public budget’) required the government to submit the projects for the state budget and the state social security budget to the European Union institutions after informing the Romanian Parliament of their content.59 The Constitutional Court was called to exercise the constitutionality control of the ­amendment proposal and issued a favourable opinion.60 It ruled that the balanced budget rule provision was constitutional and that it was not contrary to any of the current provisions of the Constitution.61 The Court held that introducing the balanced budget rule in the Constitution ‘is based on the necessity of converting into a condition of constitutionality the economic exigency regarding the budgetary discipline and does not

57 Tănăsescu, Gherghina, ‘Limitation on Government Debt and Deficits in Romania’ 252. 58 Legislative proposal on 2011 constitutional amendment, file Pl-x 492/2011, is available in Romanian language at www.cdep.ro/proiecte/2011/400/90/2/pl492.pdf. According to the constitutional revision proposal, the new proposed balanced budget rule had the following content: ‘(1) The State must avoid an excessive budget deficit. The budget deficit cannot be higher than 3 per cent of GDP and public debt may not exceed 60 per cent of domestic GDP. (2) Foreign loans may only be contracted in the area of investments. (3) In the event of a natural disaster or exceptional situations with negative impact on public finances, the maximum ceilings set out in paragraph (1) can be exceeded, with the consent of the majority of Members of Parliament, only if the excess can be compensated up to a period of three years. (4) Notwithstanding the provisions of paragraph (2) to prevent consequences of natural disaster or other serious disasters, with the consent of the majority of members Parliament other foreign loans can be contracted.’ 59 Legislative proposal on 2011 constitutional amendment, file Pl-x 492/2011, is available in Romanian language at www.cdep.ro/proiecte/2011/400/90/2/pl492.pdf. According to the constitutional revision proposal, ‘the Government prepares the drafts for the state budget and for the state social security budget on an annual basis, which are submitted to the institutions of European Union after informing the Parliament on their content.’ 60 Constitutional Court of Romania, Decision no 799/2011, published in Official Journal of Romania no 440/23.06.2011. 61 Ibid, pp 30–31. In its reasoning, the Constitutional Court declared that: ‘According to the Stability and Growth Pact, an agreement between the Member States of the European Union with the aim of coordinating national fiscal policies within the Monetary Economic Union to ensure a climate of stability and budgetary prudence, the excessive deficit procedure is the main constraint instrument of the Member States to meet the convergence criteria established by the Maastricht Treaty on the avoidance of excessive public deficits. If a state has a budget deficit of more than 3% of gross domestic product or a public debt of more than 60%, the European Commission may recommend to the Council to take a series of measures against the Member State that breaches the terms of the pact. Starting with December 1, 2009, the date of entry into force of the Lisbon Treaty, the provisions of Article 104 of the Maastricht Treaty were included in Article 126 of the Treaty on the Functioning of the European Union.’ The Constitutional Court also mentioned, in its reasoning, Art 1 of Protocol No 12 on the procedure applicable to excessive deficits and the text of the Declaration on Art 126 TFEU, highlighting that, according to the mentioned Declaration, ‘a system based on rules is the best way to guarantee compliance and equal treatment for all Member States. The European Union is pursuing a balanced economic growth and price stability, and as a result, economic and budgetary policies must set appropriate priorities in the areas of economic reforms, innovations, competitiveness and the consolidation of private investments and consumption during periods when economic growth is low.’

Romania  595 violate the limits of revision of the Constitution, provided by Article 152(1) of the Constitution’.62 The amendment was considered necessary by the Constitutional Court, since it reaffirmed the binding obligations undertaken by Romania under the Stability and Growth Pact, under Article 126 TFEU and Protocol no 12. What is important to highlight from the EMU perspective here is that the Constitutional Court held that the obligations implied by the proposed balanced budget rule are part of the Stability and Growth Pact, of Article 126 TFEU and Protocol no 12. Even more, the Constitutional Court declared that the proposed balanced budget rule does not infringe Article 152 of the Constitution, which concerns the limits of a constitutional revision and prohibits any revision affecting the national, independent, unitary and indivisible character of the Romanian state.63 Hence, the Constitutional Court found no constitutional obstacles to introducing the balanced budget rule in the Constitution. However, the Constitutional Court ruled differently with respect to the proposed amendment of Article 138 that required the submission of the state budgets for review to the EU. The Constitutional Court ruled that this amendment was excessive and redundant, as Romania, as a member of the EU, acts based on the founding treaties and no further constitutional provisions are necessary in this respect.64 In this case, as opposed to the proposed balanced budget rule amendment, the Constitutional Court rejected the amendment without mentioning any EU law or international provisions imposing such an obligation. Still, no constitutional obstacles were found here, either – only the redundant character of the provision was held, not the unconstitutionality. Nevertheless, the 2011 constitutional amendment was rejected in parliament due to low political support.65 The entire revision proposal initiated by the president based on the proposal of the government was rejected in parliament due to the lack of necessary constitutional law quorum (two-thirds of the members of the parliament) and finally, the revision proposal was not submitted to a referendum. The reasoning of the Constitutional Court in Decision no 799/2011, although it concerned only the balanced budget rule, remains a strong indicator for the possible future position of the Constitutional Court related to further transfer of powers in the field of EMU. Considering the current provisions of the Constitution of Romania and Decision no 799/2011 of the Constitutional Court, at this moment there are no constitutional obstacles to further EMU integration measures (including Romania’s accession to the eurozone), at least as long as such measures are based on binding obligations undertaken by Romania as a Member State of the European Union or under international law. Similarly, there are currently no constitutional obstacles requiring a constitutional amendment in order to implement measures strengthening the EMU. From a constitutional perspective, Romania’s accession to the eurozone does not require further constitutional provisions or amendments concerning eurozone membership. Moreover, there was also no significant public debate in Romania for the introduction of provisions concerning eurozone membership. Regarding further transfer of powers in the field of EMU through treaties, it should be emphasised that procedurally, the Constitutional Court can declare the unconstitutionality of the international agreements agreed upon by the government as it enjoys the power of prior 62 Constitutional Court of Romania, Decision no 799/2011, published in Official Journal of Romania no 440/23.06.2011. 63 Ibid. 64 Ibid. 65 The legislative procedure regarding the 2011 constitutional amendment (file Pl-x 492/2011), is available in Romanian at www.cdep.ro/pls/proiecte/upl_pck2015.proiect?cam=2&idp=12163

596  Dr Mihaela Vrabie constitutionality control of treaties, according to Article 146(b) of the Constitution. Once the unconstitutionality of a treaty or international agreement has been confirmed by the Court, that treaty or international agreement cannot be ratified by the parliament. This is because the parliament may ratify only constitutionally compliant international agreements.66 As a solution, the Constitution provides for the possibility of a constitutional revision and the ratification of the international agreement after the contradictions have been removed.67 Ratification by the parliament is a necessary requirement for a treaty to become applicable in Romanian law. The prior constitutionality control of treaties has never been used in relation to an international treaty or EU treaty since 2003, when it was included this possibility in the Constitution. This is because the Constitutional Court cannot initiate this control ex officio and systematically. It does so only upon request of one of the presidents of the two chambers of parliament or a group of at least 50 deputies or at least 25 senators.68 These procedural limitations, combined with the fact that after the ratification, the constitutionality of treaties can no longer be challenged before the Constitutional Court by means of posterior constitutionality control, show the inefficiency of the constitutionality control of international treaties under the Constitution of Romania.69 The Constitutional Court is yet to fully develop the concept of constitutional identity as a concept opposing EU integration or EU law and it is unlikely that in the future such a concept may be developed as a counter-argument to further EMU integration. However, it must be pointed out that the Constitutional Court delivered some decisions70 where the concept of national constitutional identity is mentioned by the Court as a limit to the binding obligations resulting from EU membership. From this perspective, decision no 414/201971 is a relevant and recent example. This case concerned the constitutionality control of the amendment of Article 30 of Law no 312/2004 regarding the Statute of the National Bank of Romania (BNR), which limited BNR’s power of maintaining international reserves of gold, eliminating the possibility of depositing gold abroad. This amendment was adopted against the contrary opinion expressed by the BNR and without consulting the European Central Bank (ECB). In this case, the unconstitutionality was claimed, also, in relation to EU law and the Constitutional Court was called to use the provisions of EU law as a legal ground for the constitutional control. The EU law provisions allegedly violated were Articles 127(4), 129(4) and 282(5) TFEU, as well as Article 2(1) of the Council Decision 98/415/EC.72 In this decision, the Constitutional Court declared that starting from the moment of accession of Romania to the EU, EU law is binding for Romania, according to the conditions established by the Romania’s Accession Treaty to the EU and by the founding EU treaties. More than that, the Constitutional Court acknowledged that, in areas where the EU has exclusive powers, the implementation of the obligations resulting from the international treaties will be subject to the rules of the EU. Therefore, the Constitutional Court declared that, according to Article 148(2)–(4) of the

66 Art 147(3), Constitution of Romania. 67 Art 11(3), ibid. 68 Art 146(b), ibid. 69 Muraru, Tănăsescu, Constituția României – Comentariu pe articole (2008) 121. 70 Constitutional Court of Romania, Decision no 683/27.06.2012, published in Official Journal of Romania no 479/12.07.2012, Section II and Decision no 414/26.06.2019, published in Official Journal of Romania no 922/15.11.2019. 71 Constitutional Court of Romania, Decision no 414/26.06.2019, published in Official Journal of Romania no 922/15.11.2019. 72 Council Decision of 29 June 1998 on the consultation of the European Central Bank by national authorities regarding draft legislative provisions.

Romania  597 Constitution, Romania applies the obligations resulting from the Accession Treaty in good faith, accepting not to interfere with the exclusive powers of the EU and based on the conformity clause included in Article 148 of the Constitution, Romania cannot adopt legislative acts contrary to the obligations resulting from EU membership. Still, after acknowledging the binding legal force of EU law, the Constitutional Court included in its reasoning a limit, declaring that ‘all of the above, of course, know a constitutional limit, expressed in what the Court has described as national constitutional identity’.73 Hence, the Constitutional Court makes reference to the national constitutional identity, but does not define this concept. The constitutional doctrine also makes reference to the constitutional identity of Romania, describing it as a modern, rational, contemporary one, because the Constitution includes a democratic state organisation based on the rule of law and that its supreme values are justice, free development of human personality, pluralism, citizens’ fundamental rights and freedoms. Therefore, in the constitutional doctrine it was affirmed that the Constitution should not be interpreted in a restrictive sense, because such an attitude would be contrary to the national constitutional identity.74 In the recent practice of the Constitutional Court,75 the EMU-related rules (within or outside EU law) and correspondent national legislation seem to lack constitutional relevance, which means that the Constitutional Court most likely will refrain from exercising constitutionality review in connection to EMU-related instruments, at least until the Constitution is amended in order to include provisions aiming to strengthen fiscal and budgetary discipline. The current attitude of the Constitutional Court towards EMU-related rules is best illustrated in decision no 127/06.03.2019, where the Court refused to examine the constitutionality of the Law on the state budget for 2019 in light of alleged violations of EMU-related law. The provisions allegedly violated were EMU-related rules within EU law (Articles 121 and 126 TFEU), outside EU law (Article 3 TSCG) and also correspondent ordinary national legislation implementing EMU measures (Law no 500/2002 on public finances and Law no 69/2010 on fiscal-budgetary responsibility). The Constitutional Court held that economic and financial issues in general, and EMU-related rules, in particular, do not have constitutional relevance and cannot constitute a legal basis for the review of constitutionality. According to this decision, the Constitutional Court assigns exclusively to the government and parliament the planning and the execution of the financial and budgetary policies, which have a large margin of appreciation in economic and financial policy choices, with no or minimum constitutional control.76 Accordingly, although there are no constitutional obstacles to further EMU integration, a future constitutional amendment concerning the balanced budget rule might be an answer to the instability given by the current ordinary character of the legislation implementing principles or institutional design related to the EMU. In the same line, if the Constitution is amended to include the balanced budget rule, this would open the path to future constitutionality review of ordinary and organic laws based on the balanced budget rule, having new constitutional relevance.

73 Constitutional Court of Romania, Decision no 414/26.06.2019, published in Official Journal of Romania no 922/15.11.2019, para 116. 74 Elena Simina Tănăsescu, ‘Despre identitatea constituțională și rolul integrator al Constituției’, (2017) 5, Curierul Judiciar 243. 75 Constitutional Court of Romania, Decision no 127/06.03.2019, published in Official Journal of Romania no 189/08.03.2019. 76 Constitutional Court of Romania, Decision no 127/06.03.2019, published in Official Journal of Romania no 189/08.03.2019. For more details regarding Decision no 127/06.03.2019 of the Constitutional Court, see section IV.

598  Dr Mihaela Vrabie

IV.  Constitutional Rules and Practice on Implementing EMU-Related Law The general field of public finances – which includes EMU-related aspects – is regulated in Romania by three major categories of laws: (i) public finance laws, as general and specific rules applicable to public funds (Law no 500/2002 on public finances and Law no 273/2006 on local public finances), which are supplemented by Law no 69/2010 on fiscal-budgetary responsibility (which implemented the TSCG by amendments introduced through Law no 377/2013 to Law no 69/2010), establishing specific rules and principles for all stages of the budgetary procedure; (ii) the annual budgetary laws; and (iii) special laws, applicable to the various aspects included in the subject of public financial law, as well as secondary rules, such as those applicable to public procurement, public debt, public financial control, financial crisis, state aid, etc. Starting with the date of Romania’s accession to the EU, this legal framework is supplemented in the field of EMU-related law with mandatory EU legislation, such as rules on the coordination of the economic policies and the budgetary discipline in the Member States included in the TFEU (Articles 119–26, 143 TFEU) and developed in secondary EU legislation, as well as with the provisions of the TSCG. Many of these EU rules are directly applicable in Romanian national law, while others have been transposed in national law (EU directives) or have been ratified by the parliament, as a treaty, such as the TSCG. In the Romanian legal system, the EU founding treaties and EU law with mandatory legal force are directly applicable (except for EU directives) and have primacy over the contrary national law, according to Article 148(2) of the Constitution. The term ‘national law’ used in the text of Article 148(2) of the Constitution designates the broader category of all normative acts issued by the state authorities, not only the acts adopted by parliament. According to Article 148(1) of the Constitution, Romania’s accession to the EU founding treaties had to be approved by a law adopted in the joint sitting of the Chamber of Deputies and the Senate, with a majority of two-thirds of the total number of deputies and senators. The same rule applies for Romania’s accession to the treaties concerning amendments or revisions of the EU founding treaties. The provisions of treaties (outside EU law) need to be ratified by the parliament, according to Article 11 of the Constitution, in order to become a part of Romanian national law and applicable within its legal system.77 In exceptional situations, Law 590/2003 on international agreements provides that under special conditions some international agreements can be ratified by the government through an emergency ordinance procedure. Treaties (outside EU law) need to be ratified by the parliament by a majority vote of the members present in each chamber of parliament, or by the majority vote of the members of each chamber of parliament, depending if the content of the treaty to be ratified deals with matters covered by ordinary law or organic law.78 It follows that EMU-related law is directly applicable in Romania and prevails over contrary national law if it is officially part of EU law with binding legal force, except for the case of EU directives that need to be transposed in order to produce effects into the national legal order. EMU related law concluded as treaties that are part of international law (outside EU law), must be ratified by the parliament according to Article 11 of the Constitution in order to become part of Romanian national law.

77 Muraru, 78 Ibid,

Tănăsescu, Constituția României – Comentariu pe articole (2008) 116. 1431.

Romania  599 The Constitution of Romania does not provide any special procedural rules regarding the implementation of EU legislation. Therefore, if it is necessary to adopt subsequent national ­legislation to implement secondary EU legislation or to transpose EU directives, the national legislation will be adopted according to the general rules for the adoption of internal legislation, provided for by Articles 73–78 of the Constitution of Romania (for the acts of parliament) or by Article 108 of the Constitution of Romania (for the acts of government). Furthermore, the Constitution of Romania does not provide any rules related to fiscal-budgetary discipline – in this respect, the Constitution only provides that the use and control of the financial resources shall be regulated by law (Article 137 of the Constitution) and mentions the general types of public budgets that are to be adopted each year (ie, state budget, state social security budget and local budgets), the authorities that can adopt the budgets and the rule that no expenditure may be approved without determining the source of its financing (Article 138 of the Constitution). Article 148(4)–(5) of the Constitution79 establishes institutional guarantees for the fulfilment of the obligations resulting from Romania’s status as a Member State of the European Union. In essence, these obligations refer to the effective and active participation of Romania in the European Union, to its institutional and legal construction, as well as to the conscious and full assumption of the obligations that result from the entire legal order of the EU. The institutional guarantees cover all three powers of the state – legislative, executive and judicial – due to the fact that participation in the EU does not imply only the implementation or transposition into national law of EU law (result of the activity of the parliament or of the government) but also the concrete application of EU law, realised by the administrative and judicial bodies. Therefore, all public authorities of the Romanian state are bound to contribute, within the limits of the powers assigned to them by the Constitution, to the efficient observance and implementation of the provisions of the EU normative system.80 As shown previously in section III, the implementation in Romania of EMU-related law, within and outside EU law, aiming to strengthen and to ensure fiscal and budgetary discipline (as the TSCG) was made entirely through ordinary laws and not by constitutional amendments. The main legal framework implementing EMU-related law in Romania – aiming to limit the public debt and deficits and to create a supervisory and correction framework – are three separate ordinary laws.81 This choice of implementing EMU law in Romania (ie, through ordinary laws) is questionable in terms of efficiency, due to the fact that ordinary laws can be easily amended by other ordinary laws adopted at the moment of approval or rectification of the annual budgets, because all ordinary laws are situated on the same level in the hierarchy of norms. This option is not contrary to Article 73 of the Constitution, which establishes the categories of laws that can be adopted by the parliament. However, it may be subject to further scrutiny under Article 8 TSCG on compliance with the requirement to have the balanced budget rule included at constitutional level or at a similar level (supposedly not allowing for amendments by the annual budgetary laws).82 79 Constitution of Romania, Art 148(4): ‘The Parliament, the President of Romania, the Government, and the judicial authority shall guarantee that the obligations resulting from the accession act and the provisions of paragraph (2) are implemented.’ Constitution of Romania, Art 148(5): ‘The Government shall send to the two Chambers of the Parliament the draft mandatory acts before they are submitted to the European Union institutions for approval.’ 80 Muraru, Tănăsescu, Constituția României – Comentariu pe articole, (2008), 1435. 81 Law no 500/2002 on public finances, Law no 273/2006 on local public finances and Law no 69/2010 on fiscalbudgetary responsibility. TSCG was implemented by amendments introduced by Law no 377/2013 to Law no 69/2010 on fiscal-budgetary responsibility and by amendments introduced by Law no 270/2013 to Law no 500/2002 on public finances). 82 Tănăsescu, Gherghina, ‘Limitation on Government Debt and Deficits in Romania’ 252.

600  Dr Mihaela Vrabie Article 73 of the Constitution establishes three types of laws that can be adopted by the parliament: constitutional laws (concern the revision of the Constitution), organic laws (reserved for more important areas, eg, the electoral system, the organisation and holding of referendum, the state of siege and emergency, the state of partial or total mobilisation of the armed forces and the state of war) and ordinary laws (all the other areas that do not fall under the objects of regulation provided for organic law). Since the field of public finances is not included among the fields of regulation of the organic law provided by Article 73(3) of the Constitution83 or by other constitutional provisions, the parliament had no other possibility but to implement EMU-related law through ordinary laws (by the majority vote of the members present in each chamber of parliament – simple majority). Even if the parliament would have adopted EMU-related laws with the majority required for the organic laws (absolute majority – the majority vote of the members of each chamber of parliament), this would not have been sufficient, under the current constitutional provisions, to declare the EMU-related laws in question as organic. This is because the fields of organic law are strictly provided by the Constitution and are of strict interpretation, as the Constitutional Court ruled.84 On the contrary, regarding the possibility of introducing the euro, the Constitution of Romania has a different view – it clearly provides that this may be acknowledged by means of organic law.85 All in all, the main weakness of the legal framework implementing EMU-related law in Romania (although including a balanced budget principle and a debt brake, together with fiscal discipline rules and a permanent assessment of fiscal budgetary strategies, measures and regulations by an independent Fiscal Council, and thus complying with the principles agreed at the European level) derives from the fact that all such rules are easily amendable upon approval or rectification of annual budgets or by any other derogatory provisions of other ordinary laws.86 The legislative bodies used in practice this possibility of amendment, since all the budgetary corrections since 2012 included derogations from the rules established by Law no 69/2010.87 It has been argued, in the financial law doctrine, that this choice of the Romanian legislator – to implement the balanced budget rule in an ordinary law – does not respect the regulatory standard established by Article 3(2) of the TSCG and as a solution an amendment of the Constitution was proposed in order to include the balanced budget rule.88 Such amendment, however, is not currently a subject of public or political debate in Romania. 83 Art 73(3), Constitution of Romania: ‘Organic laws shall regulate: a) the electoral system; the organization and ­functioning of the Permanent Electoral Authority; b) the organization, functioning, and financing of political parties; c) the statute of Deputies and Senators, the establishment of their emoluments and other rights; d) the organization and holding of referendum; e) the organization of the Government and of the Supreme Council of National Defence; f) the state of partial or total mobilization of the armed forces and the state of war; g) the state of siege and emergency; h) criminal offences, penalties, and the execution thereof; i) the granting of amnesty or collective pardon; j) the statute of public servants; k) the contentious business falling within the competence of administrative courts; l) the organization and functioning of the Superior Council of Magistracy, the courts of law, the Public Ministry, and the Court of Audit; m) the general legal status of property and inheritance; n) the general organization of education; o) the organization of local public administration, territory, as well as the general rules on local autonomy; p) the general rules covering labour relations, trade unions, employers’ associations, and social protection; r) the status of national minorities in Romania; s) the general statutory rules of religious cults; t) the other fields for which the Constitution stipulates the enactment of organic laws.’ 84 Constitutional Court of Romania, Decision no 53/1994, published in Official Journal of Romania no 312/09.11.1994. 85 Art 137(2), Constitution of Romania. 86 Tănăsescu, Gherghina, ‘Limitation on Government Debt and Deficits in Romania’ 241–42. 87 Simona Gherghina, ‘Limitări și alegeri: aspecte normative ale echilibrului bugetar în Romania’ in ES Tănăsescu, E Oliva (eds), Echilibrul bugetar. Impact normativ și instituțional. Efecte asupra protecției drepturilor fundamentale, (Bucharest, Editura Hamangiu, 2015) 11, 22. For example, Law no 500/2002 on public finances was amended by Law no 186/2014 of the state budget for 2015. 88 Gherghina, Drept financiar public (2019) 68.

Romania  601 Similarly, it has been argued that the effect of the application of the rules enshrined in Law no 69/2010 should be to establish a superiority of its provisions, at least with respect to the rules aiming to ensure the budgetary balance and to limit the public debt, over the norms included in the laws for the adoption or rectification of public budgets (although no legal constitutional grounds can be given for this interpretation).89 The budget drafting process at national level, as it is regulated by Law no 500/2002 on public finances and Law no 69/2010 on fiscal-budgetary responsibility reveals four important specific characteristics: (i) This process is unevenly regulated by two different laws. The first one, the Law on public finances, sets the powers of all those involved in the budget projection (Ministry of Public Finances, government, managers of public funds) and the rules each one has to follow, together with the schedule for the budget drafting process. Since 2010 it is the Law no 69/2010 that provides general principles for defining the national fiscal and budgetary policies, the objectives pursued by these policies and the specific rules applicable to drafting the budgets. Consequently, these two laws are to be read and applied in conjunction. This approach is not the best solution for a transparent and efficient regulation of the budgetary process. All regulations pertaining to the process of budget drafting should be included in a single regulation, in a manner allowing for unitary application and, eventually, the identification and elimination of any gaps and repetitions.90 (ii) Most of the stages of the budget drafting process are conducted by the Ministry of Public Finances, with the government merely approving or endorsing documents produced by the Ministry (fiscal and budgetary strategy, budget drafts, drafts of the laws for budget approval).91 (iii) All laws included in the budgetary process, both those of permanent and respectively of temporary application are ordinary laws. This means that any of them may amend any or all of the others, which would lead to an open-ended possibility for amendments and derogations.92 (iv) Although a part of the rules aiming at budgetary discipline, the role of the Fiscal Council in Romania seems to be, from recent experiences, rather formal (its opinions are not mandatory), with little consideration given to the substance of the criticism in its opinions issued on government’s fiscal-budgetary documents.93 The Constitutional Court ruled that the lack of approval of the Fiscal Council is not an obstacle for the adoption of laws by the parliament, which means that a law lacking the approval (including negative opinion) of the Fiscal Council will not be considered unconstitutional and may still enter into force.94 The only court enforcement procedure that allows challenging the annual budgetary laws in case the rules of the fiscal-budgetary discipline are disregarded, is the constitutionality control exercised by the Constitutional Court, which is limited to the constitutionality of the budgetary laws. Therefore, based on Article 138(5) of the Constitution the Constitutional Court reviewed the 89 Gherghina, ‘Limitări și alegeri: aspecte normative ale echilibrului bugetar în Romania’ 22–23. 90 Tănăsescu, Gherghina, ‘Limitation on Government Debt and Deficits in Romania’ 246. 91 Ibid, 246. 92 Ibid, 247. 93 Ibid, 248. For the same opinion, see Elena Simina Tănăsescu, ‘Consiliul Fiscal din Romania’ in ES Tănăsescu, E Oliva (eds.), Echilibrul bugetar. Impact normativ și instituțional. Efecte asupra protecției drepturilor fundamentale, (Bucharest, Editura Hamangiu, 2015) 83, 99. 94 Constitutional Court of Romania, Decision no 795/16.12.2016, published in Official Journal of Romania no 122/14.02.2017.

602  Dr Mihaela Vrabie constitutionality of certain economic crisis measures in light of the rule that no expenditure may be approved without determining the source of its financing, or based on the breach of economic and social fundamental rights.95 In reviewing the constitutionality of a law aiming to introduce special pensions for elected officials from the local public administration, the Court ruled that the constitutional requirement is met only if the indicated source of financing is really capable of covering the expenditure under the conditions of the annual budget law. According to the Court, the constitutional text refers to the objective and effective nature of the financing source and operates with elements of budgetary certainty and predictability, because otherwise it would lose the reason for its normative existence. Since in that case, the indicated source of financing was not considered really capable of covering the expenditure, the Court accepted the objection to unconstitutionality.96 After implementing the rules aiming to ensure fiscal and budgetary discipline in 2013, when the Constitutional Court was called to review the constitutionality of the annual laws of the state budget based on Law no 69/2010 on fiscal-budgetary responsibility and Law no 500/2002 on public finances, or based on EMU-related law, the Court held clearly that it lacks any jurisdiction to review the technical issues regarding the economic foundations of the state budget97 and that economic and financial issues in general and EMU-related rules, in particular, do not have constitutional relevance and cannot constitute a legal basis for the constitutionality review.98 With respect to enforcement of EMU-related law through the Court, the most relevant and the most recent decision of the Constitutional Court is decision no 127/06.03.2019. In this decision, the Court has declined exercising jurisdiction with respect to alleged violations of TSCG and Article 126 TFEU regarding excessive public deficits in the context of constitutionality control of the 2019 budget law.99 In this case, the President of Romania argued that the Law of the state budget for 2019 violated the internal rules of the fiscal-budgetary discipline, that the opinions of the Fiscal Council had not been given due regard by the government and parliament in the context of budgetary construction, and that the provisions aiming to limit the public debt and deficits and to create a supervision and correction framework from the TSCG had been disregarded. Other arguments were related to the existence of significant differences between the macroeconomic and budgetary forecasts made by the European Commission and those made by the government. The Court rejected the argument of unconstitutionality and declared that TSCG is not officially part of EU law and therefore its provisions cannot be used as interposed norms that can be integrated in the standard of review for the control of constitutionality of national legislation. Furthermore, the Constitutional Court held that it has no jurisdiction related to violations of Articles 121 and 126 TFEU in the context of the constitutionality control of the budget law (even though the Court acknowledged the binding legal force of these EU law provisions) therefore any such violations must be ascertained in the excessive deficit procedure provided for by Article 126 TFEU, in which the Constitutional Court is not involved. Finally, the Court pointed

95 Constitutional Court of Romania, Decision no 975/07.07.2010, published in Official Journal of no 568/11.08.2010, Decision no 1155/13.09.2011, published in Official Journal of Romania no 757/27.10.2011. 96 Constitutional Court of Romania, Decision no 22/20.01.2016, published in Official Journal of no 160/02.03.2016. 97 Constitutional Court of Romania, Decision no 785/29.12.2014, published in Official Journal of no 956/29.12.2014. 98 Constitutional Court of Romania, Decision no 127/06.03.2019, published in Official Journal of no 189/08.03.2019. 99 Constitutional Court of Romania, Decision no 127/06.03.2019, published in Official Journal of no 189/08.03.2019, paras 98 and 99.

Romania Romania Romania Romania Romania

Romania  603 out that, according to its constant constitutional practice, the Court has no jurisdiction related to the planning of the state budget and related to the legal framing of the state’s financial and budgetary policies in legislative measures, which are aspects that do not concern the constitutional control exercised by the Constitutional Court, otherwise an interference of the Court in the attributes of the legislative and executive powers of the state would occur, which would contravene the principle of separation and balance of powers, enshrined in Article 1(4) of the Constitution.100 This decision follows a previous decision where the Constitutional Court held that the planning of the state budget and implementing budgetary policies through legislative measures are aspects that are not subject to constitutional control.101 Therefore, the view of the Constitutional Court is that the constitutionality control cannot be extended over the economic and financial aspects or regarding the budgetary process, as it would violate the powers of the parliament, as the sole legislative authority, according to Article 61(1) of the Constitution, as well as the role of the government, which is empowered to elaborate and to present to the parliament the laws of the state budget.102

V.  Resulting Relationship between EMU-Related Law and National Law The relationship between EMU-related law and national law cannot be viewed outside the relationship between EU law and national law. The relationship between EU law and Romanian law and the constitutional foundations of the Romanian EU membership (EMU membership included) are enshrined in Article 148 of the Constitution of Romania, which provides the primacy of EU founding treaties and of all other legally binding provisions of EU law over conflicting national law. The principle of primacy of EU law has a large field of application according to the Constitution, since the term ‘national law’ is not limited only to the acts adopted by parliament. The principle is incumbent on the broader category of all normative acts issued by the state authorities and it must be observed by all the legislative, executive or judicial authorities. The Romanian Constitutional Court acknowledged that EU law prevails over conflicting national law, based on Article 148(2) of the Constitution. Furthermore, the Constitutional Court proved to be open to EU law, declaring that EU law provisions can be used as interposed norms that can be integrated in the standard of review for the constitutionality control of national law, based on Article 148(2) and (4) of the Constitution, if the EU law provision in question is officially part of EU law, has binding legal force, is sufficiently clear, precise and unconditional and has a certain level of constitutional relevance.103 Therefore, the Constitutional Court granted constitutional relevance to the judicial enforcement of EU law, under certain conditions.

100 Constitutional Court of Romania, Decision no 127/06.03.2019, published in Official Journal of no 189/08.03.2019. 101 Constitutional Court of Romania, Decision no 214/14.04.2005, published in Official Journal of no 428/20.05.2005. 102 Constitutional Court of Romania, Decision no 785/29.12.2014, published in Official Journal of no 956/29.12.2014, Decision no 127/06.03.2019, published in Official Journal of Romania no 189/08.03.2019. 103 Constitutional Court of Romania, Decision no 668/18.05.2011, published in Official Journal of no 487/08.07.2011, Decision no 127/06.03.2019, published in Official Journal of Romania no 189/08.03.2019.

Romania Romania Romania Romania

604  Dr Mihaela Vrabie Regarding the EMU, Romania is a ‘Member State with a derogation’, because it has not yet fulfilled the necessary conditions for adoption of the euro. Since its accession to the European Union, Romania made efforts to fulfil its obligations imposed by EU law in the field of the EMU and to meet the convergence criteria (price stability, public finances, exchange rate stability, long-term interest rates), but the latest reports assessing the process of the nominal and real convergence to the euro area show that Romania needs to implement further measures to adopt the single currency. According to the 2020 Convergence Report of the European Commission, Romania does not fulfil any of conditions for the adoption of the euro. Even though, according to the 2018 Convergence Report of the European Commission, Romania met the condition on public finances, the European Commission concluded, in the 2020 Convergence Report, that Romania failed to meet the criterion on public finances because on 4 April 2020, the Council opened an excessive deficit procedure for Romania, indicating 2022 as deadline for the correction of the excessive deficit. Regarding the criterion on public finances, the Commission noted correctly, in line with all the issues mentioned above in this chapter, that ‘despite having the appropriate legislative setting, the implementation track record of the Romanian fiscal framework has been generally weak and has not improved since the last report’. Looking at the causes, the Commission considered, in the 2020 report, that ‘this is because the authorities continued their practice of derogating from the national fiscal rules, rendering them ineffective’.104 Although the adoption of the euro is not a subject that appears often on the agenda of current political debates, the national public authorities are considering measures that will allow the accession of Romania to the eurozone and, according to the national Convergence Programme 2019–22, there are chances that by 2024 Romania would be able to meet the fundamental requirements for adopting the euro.105 The Romanian legal system enshrines a set of rules and principles imposed by EMU-related law, which limit the public debt and deficits and strengthen the fiscal discipline. However, these rules and principles are only provided for by ordinary laws and not by constitutional provisions (Law no 69/2010 on fiscal-budgetary responsibility and Law no 500/2002 on public finances that implemented the rules of TSCG). Since in Romania, ordinary laws have the same legal status, they can be easily amended by other ordinary laws in the context of adopting the annual budgets. The legal force of the provisions implementing crisis management measures in Romania makes them volatile and exposed to instability, especially in the context of political changes. Nevertheless, the European Commission concluded that ‘the national provisions adopted by Romania are compliant with the requirements set in Article 3(2) of the TSCG’.106 As far as EMU law is concerned, it barely had any impact on the Constitution of Romania or on the Romanian constitutionality control exercised by the Constitutional Court, since the Constitution has not been amended to include fiscal-budgetary discipline rules (although the intention of introducing the balanced budget rule at constitutional level existed and the Constitutional Court found the proposal to be constitutional) and the Constitutional Court currently considers that it lacks jurisdiction to review the constitutionality of laws based on the rules of the fiscal-budgetary discipline enshrined by national law or by EMU-related law 104 2020 Convergence Report of the European Commission, 19–21, available at https://ec.europa.eu/info/sites/info/files/ economy-finance/ip129_en.pdf. 105 The Convergence Programme 2019–22, adopted by the Romanian government in May 2019, available at www. discutii.mfinante.ro/static/10/Mfp/resurse/program_convergenta_editia2019_2022.pdf and available at www.ec.europa. eu/info/sites/info/files/2019-european-semester-convergence-programme-romania_ro.pdf (author’s translation from Romanian). 106 2017 European Commission Report presented under Art 8 of the TSCG in the Economic and Monetary Union, available at www.ec.europa.eu/info/sites/info/files/romania_-_country_annex_to_the_report_c20171201.pdf.

Romania  605 (within or outside EU law). This view of the Court can be considered valid, since no provisions related to the balanced budget rule can be found in the Constitution of Romania and the Constitutional Court can only review the compatibility of laws with the provisions of the Constitution. With respect to the general impact of EMU related law on national law, two conclusions must be emphasised: (i) Law no 69/2010 on fiscal-budgetary responsibility and Law no 500/2002 on public finances (that implemented the rules of TSCG), being ordinary laws, allow any derogations from the principles of fiscal-budgetary discipline, as they can be amended by any ordinary law (eg, by any budget rectification law) or even by ordinances of government (as delegated legislation); (ii) in case the annual budgetary laws violate the rules of the fiscal-budgetary discipline enshrined by Law no 69/2010 on fiscal-budgetary responsibility and by Law no 500/2002 on public finances, the only judicial review available is the constitutionality control exercised by the Constitutional Court. However, this procedure can only be used to review the constitutionality of laws approving the budget (which excludes the balanced budget rule or other limitations concerning the budget deficit). Accordingly, although the legal framework in Romania currently contains a set of rules aiming to ensure fiscal and budgetary discipline, which limit the public debt and deficits, include a balanced budget rule and institutionalise a control and corrective mechanism, thus complying with EMU-related law, the efficiency of implementing these rules is weakened by the instability of ordinary laws that implement these rules and by the circumvention of any constitutionality control based on the balanced budget rule, at least until the moment this rule is included in the Constitution.

References S Gherghina, Drept financiar public, (Bucharest, CH Beck, 2019). S Gherghina, ‘Limitări și alegeri: aspecte normative ale echilibrului bugetar în Romania’ in ES Tănăsescu, E Oliva (eds.), Echilibrul bugetar. Impact normativ și instituțional. Efecte asupra protecției drepturilor fundamentale (Bucharest, Editura Hamangiu, 2015) 11. B Iancu, ‘Romania – The Vagaries of International Grafts on Unsettled Constitutions’ in A Albi and S Bardutzky (eds), National Constitutions in European and Global Governance: Democracy, Rights, the Rule of Law (Hague, TMC Asser Press, 2019) 1047. I Muraru, ES Tănăsescu, Constituția României – Comentariu pe articole, (Bucharest, CH Beck, 2008). I Muraru, ES Tănăsescu, Drept constituțional și instituții politice, 13th edn, vol II (Bucharest, CH Beck, 2009). I Muraru, ES Tănăsescu, Drept constituțional și instituții politice, 14th edn, vol I (Bucharest, CH Beck, 2011). ES Tănăsescu, ‘Consiliul Fiscal din Romania’ in ES Tănăsescu, E Oliva (eds), Echilibrul bugetar. Impact normativ și instituțional. Efecte asupra protecției drepturilor fundamentale (Bucharest, Editura Hamangiu, 2015) 83. ES Tănăsescu, ‘Despre identitatea constituțională și rolul integrator al Constituției’ (2017) 5 Curierul Judiciar 243. ES Tănăsescu, S Gherghina, ‘Limitation on Government Debt and Deficits in Romania’ in F Morrison (ed), Fiscal Rules – Limits on Governmental Deficits and Debt (Switzerland, Springer international Publishing, 2016) 241.

Decisions of the Constitutional Court of Romania Decision no 504/18.09.2019, published in Official Journal of Romania no 801/03.10.2019. Decision no 51/16.02.2016, published in Official Journal of Romania no 190/ 14.03.2016. Decision no 22/18.01.2018, published in Official Journal of Romania no 177/26.02.2018.

606  Dr Mihaela Vrabie Decision no 685/07.11.2018, published in Official Journal of Romania no 1021/29.11.2018. Decision no 417/03.07.2019, published in Official Journal of Romania no 825/10.10.2019. Decision no 137/13.03.2019, published in Official Journal of Romania no 295/17.04.2019. Decision no 2/11.01.2012, published in Official Journal of Romania no 131/23.02.2012. Decision no 127/06.03.2019, published in Official Journal of Romania no 189/08.03.2019. Decision no 668/18.05.2011, published in Official Journal of Romania no 487/08.07.2011. Decision no 214/14.04.2005, published in Official Journal of Romania no 428/20.05.2005. Decision no 799/ 17.06.2011, published in Official Journal of Romania no 440/23.06.2011. Decision no 872/25.06.2010, published in Official Journal of Romania no 433/28.06.2010. Decision no 1414/04.11.2009, published in Official Journal of Romania no 796/23.11.2009. Decision no 53/18.05.1994, published in Official Journal of Romania no 312/09.11.1994. Decision no 795/16.12.2016, published in Official Journal of Romania no 122/14.02.2017. Decision no 975/07.07.2010, published in Official Journal of Romania no 568/11.08.2010. Decision no 1155/13.09.2011, published in Official Journal of Romania no 757/27.10.2011. Decision no 785/29.12.2014, published in Official Journal of Romania no 956/29.12.2014. Decision no 22/20.01.2016, published in Official Journal of Romania no 160/02.03.2016. Decision no 683/27.06.2012, published in Official Journal of Romania no 479/12.07.2012. Decision no 414/26.06.2019, published in Official Journal of Romania no 922/15.11.2019.

25 Slovakia (Seemingly) No Legal Obstacles to Deepening EMU Integration ROBERT ZBÍRAL

Abstract: Slovakia’s position during the euro crisis and the accompanying reforms has been predetermined by its specific situation. Slovakia’s still rather underdeveloped economy depends heavily on the eurozone, and membership in the EU and the monetary union (EMU) remains quite popular. Compared to other Member States, Slovakia’s public finances and financial sector have not faced any serious problems. As a result, Slovakia has actively supported all measures aimed at strengthening fiscal responsibility, while it was much more reluctant towards instruments seeking to rescue (nominally richer) states in difficulties. Any problematic aspects stemming from the euro crisis have been primarily viewed as political rather than legal questions. The Slovak constitutional order provides a very complex solution for Slovakia’s EU membership and adoption of international treaties. Due to that complexity all EMU reforms were implemented through general measures, and no special constitutional amendments were required. There was also no judicial review of the instruments. The overall position of the Slovak legal system and relevant case law might be labelled as ‘Euro-optimistic’, and under current conditions should pose no obstacles to further EMU integration. Key words: Slovakia, constitutional order, EMU reforms, Euro amendment, National Council, fiscal responsibility.

I.  General Introductory Remarks The Slovak Republic gained independence in 1993 as one of the successor states of Czechoslovakia. Apart from a brief period during World War II, the country was always a (minor) part of a larger state such as Hungary or later Czechoslovakia. In this light, there have been tensions between supporters of a nationalistic mind-set and those promoting the integration of Slovakia into European structures. The nationalistic approach was especially influential in the period under governments led by Vladimír Mečiar in the 1990s, while the latter was promoted mainly by the subsequent right-wing coalitions under Mikuláš Dzurinda who was in power between 1998 and 2006. Since then, Slovak politics has been dominated by Robert Fico

608  Robert Zbíral and his social democratic SMER party. While Fico has generally supported EU integration, he has also skilfully mastered catering for nationalist opinions if it was useful for his policy goals.1 Another key aspect relevant for this chapter is the unique Slovak economic situation. Slovakia was traditionally the less developed part of Czechoslovakia, and any economic progress was mediocre at best during the 1990s. However, after radical reforms at the beginning of the new millennium, Slovakia has become the real ‘economic tiger’ of Central and Eastern Europe, with regular high GDP increases. The growth has been fuelled mainly by foreign investment in the manufacturing sector (mostly car production) and subsequent exports – while exports of goods and services accounted only for 47 per cent of the GDP in 1998, the figure more than doubled until 2016, making Slovakia immensely interconnected with and dependent on EU markets, especially the German one.2 Although the economic growth is undisputable, at the same time Slovakia has suffered from a rather high unemployment and slow increase of real wages. The economic boom is also very unequally distributed. Bratislava (the capital) is nowadays a region with the sixth highest GDP per capita in the EU (184 per cent of EU’s GDP average). The East Slovakia region, however, occupies the 30th lowest place in the EU ranking of regions, with only 54 per cent of EU’s GDP average.3 Finally, yet importantly, it must be admitted that the amount of ‘food for thought’ available and usable for this chapter is limited – an outcome caused by several motives and subjective reasons that are discussed in more details below but I found it useful to at least briefly list them here in the introduction. Firstly, with a population of about 5.5 million, Slovakia belongs to the group of smaller EU countries. This means that the academic debate on constitutional aspects of EU membership is restricted to few scholars only. Secondly, the 2001 amendment of the Slovak Constitution added detailed provisions regulating the relationship between EU and national law. This made further constitutional changes, as in the context of the euro crisis, unnecessary. Thirdly, and probably also because of the second reason, while the euro crisis certainly became a major event in Slovakia, it was viewed primarily as an economic and political problem, rather than a legal or constitutional one. This combination of causes has unfortunately resulted in very few sources that deal directly with the EMU and related matters, be they primary (eg court decisions) or secondary (eg academic articles).

II.  Main Characteristics of the Slovak Constitutional System and Constitutional Culture The Slovak Constitution (SC) is at the apex of the Slovak legal order and has the highest legal force. With 164 articles (originally there were 156; one was repealed and nine others added) and length of about 19,000 words, it does not stand out among constitutions from neighbouring countries.4 Its significance and role is quite similar to founding documents of other European states. It sets the institutional structure of the state, including the separation of powers and system of check and balances, regulates the exercise and the limits of public power, and contains a catalogue of fundamental rights and freedoms (Articles 12–54 SC). Many basic principles of formal

1 Nationalist parties were members of Fico’s coalition governments between 2006–10 and 2016–18. 2 Data extracted from www.data.oecd.org/slovak-republic.htm#profile-economy. 3 Data extracted from www.ec.europa.eu/eurostat/statistics-explained/index.php/GDP_at_regional_level. 4 See the statistics available at Comparative Constitutional Project www.comparativeconstitutionsproject.org/ ccp-rankings/.

Slovakia  609 and material rule of law (more appropriately termed Rechtsstaat, in Central European legal tradition), such as legal certainty or non-retroactivity, are not explicitly listed in the text of the SC. Nevertheless, they are traditionally extracted from the general clause in Article 1(1) SC, ‘The Slovak Republic is a sovereign, democratic state governed by the rule of law’. Slovakia is a unitary state. While its territory is divided into eight regions and more than 3,000 municipalities that enjoy certain autonomy (Articles 64–71 SC), the central institutions are significantly more powerful. Similar to many post-communist states of Central and Eastern Europe, the Slovak constitutional (political) system is a classic parliamentary democracy. The Slovak unicameral parliament is called the National Council and consists of 150 deputies. They are elected for a four-year term in a proportional electoral system with 5 per cent threshold (Articles 73 and 74 SC). The National Council holds wide competences. Not only is it the main legislative body, but it also participates in the appointment of numerous official posts. The government, as the main executive body, is accountable to the National Council and it needs to undergo positive investiture vote at the start of its mandate (Articles 113 and 114 SC). The combination of the investiture vote and the proportional electoral system usually requires the formation of coalition governments.5 The Prime Minister is, technically, only primus inter partes. However, due to the recent dominance of SMER in Fico’s governments, his approach in the cabinet was much more ‘authoritarian’. Despite the formal superiority of the National Council over the government, the latter in practice holds the upper hand. The Slovak government customarily firmly commands the parliamentary business, and while occasional revolts of coalition deputies against governmental policy occur, the National Council as a body plays less prominent role in comparison to the Czech Chamber of Deputies, for example.6 The second pillar of the executive power is captured in the institution of the president. The president acts as the official head of state, yet does not exercise real executive power. Nevertheless, he is equipped with numerous formal competences that can be exercised either singlehandedly or with the consent of the government or the National Council (see Article 102 SC for details). The actual power position of the president depends primarily on his relationship with the government. Since 1999, the president has been elected directly by the citizens for five-year terms. Thus, he might represent different political interests than the coalition majority.7 Former Slovak presidents sometimes chose to utilise their formal powers to oppose certain steps of governments. This trend intensified into a tacit conflict between Robert Fico and the current president Andrej Kiska, eg during the process of nomination of judges of the Slovak Constitutional Court (SCC). In the spring of 2018, the murder of the journalist Ján Kuciak escalated into a political crisis that resulted in Fico’s resignation and his replacement by Peter Pellegrini (also SMER).8 The judicial branch is composed of ordinary courts (district courts, regional courts, Supreme Court, and a Special Criminal Court; Article 143 SC) and the SCC. The latter was founded on the classic Central European paradigm and holds strong formal competences. In particular, anyone could submit a complaint that her or his fundamental rights or freedoms were infringed by any decision or action of a public body. The SCC may perform abstract and 5 However Robert Fico’s SMER won 83 seats in the 2012 elections and formed a one-party government between 2012 and 2016. 6 See eg Juraj Marušiak, ‘The political system in the Slovak Republic’ in W Gizicki (ed), Political systems of Visegrad group countries (Trnava, University of ss Cyril and Methodius, 2012) 107–48; Jakub Charvát, Petr Just, ‘Politické zemětřesení 2016? Dynamika stranického systému na Slovensku od roku 2002’ (2018) 21 Politické vedy 24. 7 See in more detail Petr Spáč, ‘Slovakia: In Search of Limits’ in V Hloušek (ed) Presidents Above Parties? Presidents in Central and Eastern Europe, Their Formal Competencies and Informal Power (Brno, Muni Press, 2013), 121–41. 8 For details of the events see Grigorij Mesežnikov, Olga Gyárfášová, ‘Slovakia’s Conflicting Camps’ (2018) 29 Journal of Democracy 78.

610  Robert Zbíral concrete constitutionality review of laws (statutes), executive acts and negotiated international treaties (Articles 125 to 128 SC, see below). However, compared to its Czech counterpart, the SCC through its case law has shaped the Slovak legal (and also constitutional) system considerably less. This has been inter alia because the judges have been chosen on a rather deferential approach towards political matters.9 The same could be generally said about the scrutiny of economic issues. No important laws related to economic or financial sectors were ever annulled for their incompatibility with the constitutional order. The limited scope of actors entitled to initiate an abstract review procedure has contributed to that status quo.10 Generally speaking, the Slovak judiciary has suffered from various structural problems that compromised its independence and impartiality and, thus, also its legitimacy. However, it must be noted that this situation is slowly improving.11 The Slovak constitutional order is polylegal. This means that apart from the SC which forms its backbone, it also consists of other constitutional laws enjoying a legal force similar to that of the SC. Currently, there are more than 10 such laws in force, some of which are discussed further in this chapter. The agreement of at least three-fifths of all members of the National Council (90 out of 150) is required to pass or amend the SC or constitutional laws (Article 84(4) SC). The relatively high threshold for amendment has not prevented politicians from attempting to amend the constitutional order. There have been more than 150 amendment proposals between 1993 and 2017. Of these, 17 succeeded in amending the SC and more than 20 succeeded in introducing new constitutional laws or amending them.12 While the evaluation of the order’s number of amendments is in principle subjective, the practice of indirect amendments of the SC is more problematic. Some constitutional laws have changed or supplemented the content of the SC without its authorization. Carl Schmitt called this a constitutional violation (Verfassungsdurchbrechung).13 Despite fierce critique of this practice from academic circles,14 the SCC has never had a chance to scrutinise these practices.15 The Slovak constitutional culture is generally embedded in the Central European (German) legal tradition and stresses the importance of the already mentioned Rechtsstaat principle and the protection of individual fundamental rights and freedoms.16 The distinct features of Slovak constitutional culture relate mainly to the establishment of the newly independent state. The SC was adopted already in September 1992, when Slovakia was still part of the Czechoslovak Federation. That means the document was drafted in a hurry and without any public deliberations or consultations with a wider group of experts. Due to the lack of a Slovak constitutional tradition, the authors of the SC had to look for inspiration elsewhere. Although not openly acknowledged, the primary sources were texts of various Czechoslovak constitutions and 9 One illustration of many: in 2017, a constitutional amendment was adopted that abolished amnesties issued by Vladimír Mečiar in 1998. The SCC upheld the amendment in a decision based on some quite problematic legal arguments (Case Pl. ÚS 7/2017, 31 May 2017, ECLI:SK:USSR:2017:PL.US.7.2017.3), see Michal Ovádek, ‘Slovakia Tackles Its Constitutional Skeleton in the Closet’ (7 June 2017) Int’l J Const L Blog, www.iconnectblog.com/2017/06/ slovakia-tackles-its-constitutional-skeleton-in-the-closet/. 10 Unlike for example in the Czech Republic, the SC does not provide that opportunity to a group of members of parliament (in practice, opposition deputies). 11 In detail see David Kosař, Perils of Judicial Self-Government in Transitional Societies (Cambridge, Cambridge University Press, 2016), 236–333. 12 Ladislav Orosz, ‘Spôsoby presadzovania ústavných zmien v doterajšej ústavnopolitickej praxi v Slovenskej republike’, mimeo, www.ustavnysud.sk/documents/10182/992164/bratislava2012.pdf/589389e4-ea52-48ed-84e6-13cf83591ae0. 13 Carl Schmitt, Verfassungsslehre (Berlin, Duncker und Humblot, 2003) 107. 14 Eg Lubor Cibulka, ‘Ústava SR – trhací kalendár?’ in J Jirásek (ed) 25 let Ústavy České republiky – Aktuální otázky ústavního práva (Olomouc, Iuridicum Olomoucense, 2017) 35. 15 Again, compared to the attitude of the Czech CC, which proclaimed this practice unconstitutional and nullified the constitutional law in question (Case Pl. ÚS 27/09, 10 September 2009, ECLI:CZ:US:2009:Pl.US.27.09.1). 16 Daniel Krošlák et al, Ústavné právo (Bratislava, Wolters Kluwer, 2016), 206–32.

Slovakia  611 constitutional laws. Numerous interpretative problems of the Slovak constitutional order were solved by relying on the Czech constitutional experience and doctrine, due to a weak Slovak academic environment. This dependence has gradually diminished with the evolution of Slovak constitutional ‘know-how’.17

III.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  General Constitutional Framework of EU Membership (Euro Amendment) The original version of the SC reflected the importance of the newly gained sovereignty of Slovakia and was almost antagonistic towards international cooperation. It introduced a strictly dualist approach, with the exception of international treaties with a human rights dimension (former Article 11 SC). Such a framework was deemed inadequate for both NATO and EU memberships and an amendment of the SC was the only realistic solution.18 Initially, only a limited set of changes was planned. However, eventually, the government proposed a more ambitious reform. The situation was further complicated during negotiations in the National Council, where the deputies submitted more than 150 amendments to the proposal. The final version was adopted in 2001 with the lowest necessary quorum of 90 deputies.19 The amendment20 (also called the euro amendment, or EU amendment) brought a significant change to the constitutional framework of the Slovak international obligations. This created one of the most complex solutions among the EU Member States. The following paragraphs present provisions of the euro amendment, accompanied by a commentary, that are relevant for the discussion on the Slovak relationship towards EU law and obligations stemming from it.

Article 1 (2) The Slovak Republic acknowledges and adheres to general rules of international law, international treaties by which it is bound, and its other international obligations.

Article 1(2) SC embodies the new general openness and positive attitude of the Slovak legal order towards international law. This relates to all Slovak international obligations regardless of their content and commits Slovakia to complying with them.21 It includes also instruments other than international treaties (eg international customs or decisions of international courts) and is thus broader than Article 7 SC. The SCC held that the provision also sets a general interpretative rule for the SC and other constitutional laws, which must be interpreted in an international 17 Details in Michal Bobek, Zuzana Vikarska, ‘Slovakia: between euro-optimism and Euro-concerns’ in A Albi, S Bardutzky (eds) National Constitutions in European and Global Governance: Democracy, Rights, the Rule of Law: National Reports (The Hague, TMC Asser Press, 2019). 18 See also the argumentation contained in the Explanatory note to Constitutional law no 90/2001 Coll. 19 For historical background see Ladislav Orosz, ‘Poznámky k novele Ústavy Slovenskej republiky’ (2001) 140 Právník 969. 20 Constitutional law no 90/2001 Coll. 21 SCC in Case Pl. ÚS 44/03, 21 October 2003 (many decisions of SCC are not paragraphed and thus no exact references to concrete parts could be given).

612  Robert Zbíral law-compliant way.22 The relevance of Article 1(2) SC for Slovakia’s relationship with EU law is questionable and depends on the way the EU legal order is classified, either as a part of general international law or as an autonomous system. There is a seemingly never-ending debate on this issue and the position varies depending on the normative perspective of the evaluator. There is no consensus in the Slovak doctrine either. While some scholars argue that the provision serves as a general reception norm also for EU law,23 others disagree and stress the exclusive applicability of Article 7 SC.24 Even though the SCC ruled on the issue, it did not really clarify the dilemma. In one of its decisions the SCC simply declared that the position of primary EU law in the Slovak legal order is governed also by Article 1(2) SC without providing reasons for that.25

Article 7(2), (5) (2) The Slovak Republic may, by an international treaty, which was ratified and promulgated in the way laid down by a law, or on the basis of such treaty, transfer the exercise of a part of its rights to the European Communities and the European Union. Legally binding acts of the European Communities and of the European Union shall have precedence over laws of the Slovak Republic. The transposition of legally binding acts which require implementation shall be realized through a law or a regulation of the Government according to Article 120, para 2. … (5) International treaties on human rights and fundamental freedoms and international treaties for whose exercise a law is not necessary, and international treaties which directly confer rights or impose duties on natural persons or legal persons and which were ratified and promulgated in the way laid down by a law shall have precedence over laws.

The core of the euro amendment vis-à-vis EU law is contained primarily in Article 7(2) SC. The first sentence forms the constitutional basis for the transfer of exercise of rights of Slovakia to the EU by international treaties that require the approval (to ratification) of three-fifths of all deputies in the National Council, the same majority as amendment of the SC itself or other constitutional laws (Article 84(4) SC).26 This ‘euro-clause’ is quite similar to provisions of other Member States. However, the terminology used in Article 7 is very specific. The word ‘rights’ (práva in Slovak) does not properly describe the legal situation. This is because that word rather refers to powers or competences that are transferred.27 The second sentence of the provision outlines the relationship between EU and national law. However, the rule is somewhat confusing and does not specifically address the position of primary EU law in the Slovak legal order, which again causes discord within the academic doctrine. One group of scholars interprets Article 7(2) SC textually and sees it as the sole basis of the application of EU law. It argues that the phrase ‘legally binding acts’ includes not only secondary EU law, but also the EU Treaties. The second function of the provision is interpretative and demands that the interpretation and application of the Slovak legal order must conform to all

22 See eg Case Pl. ÚS 17/00, 30 May 2001. 23 See eg Juraj Jankuv, ‘Postavenie medzinarodných zmlúv v právnom poriadku Slovenskej republik’ in D Lantajová, J Jankuv, Teória aplikácie medzinárodnej zmluvy jako nástroja právnej regulácie na národnej, medzinárodnej a komunitárnej úrovni (Trnava, Trnavská univerzita, 2009) 32. 24 Eg Martina Janošíková, ‘Ústava Slovenskej republiky a členstvo Slovenskej republiky v Európskej únii’ (2013) 59 Acta Universitatis Carolinae – Iuridica 253. 25 Case Pl. ÚS 10/14, 29 April 2014, ECLI:SK:USSR:2015:PL.US.10.2014.1, para 69. 26 Ján Drgonec, Ústava Slovenskej republiky (Bratislava, Beck, 2015) 313. 27 Similar critique is expressed in D Krošlák et al, Ústavné právo (2016) 135.

Slovakia  613 legally binding EU acts.28 The opposing position limits the application of Article 7(2) SC to secondary EU law, while the legal basis for primary EU law is represented by Article 7(5) SC. The argument of that group is that the EU Treaties are in reality not ‘EU acts’, because they are negotiated and ratified as international treaties by the Member States.29 The dispute is not of purely theoretical value. Article 144(2) SC imposes the following duty on ordinary courts: If a Court assumes that other generally binding legal regulation, its part, or its individual provisions which concern a pending matter contradicts the Constitution, constitutional law, international treaty pursuant to Article 7, para 5 or law, it shall suspend the proceedings and shall submit a proposal for the initiation of proceedings [before the SCC].

The proponents of the first view claim that if primary EU law is subsumed under Article 7(5) SC, the application of EU law would be centralised to the SCC. This would be because in cases of conflict between Slovak law and primary EU law (considered a treaty under Article 7(5) SC), an ordinary court would have to refer the case to the SCC, thus breaching the Simmenthal doctrine (and the EU legal principle of primacy).30 As the mentioned provision seemingly creates a constitutional contradiction to one of the main EU legal principles, the conundrum has implications for the relationship between the Slovak constitutional order and EU obligations. Any doubts on the position of EU law towards the Slovak legal order might have been clarified by the SCC, yet the signals which the SCC has given could hardly be called helpful. Initially, the judges did their best not to get involved in EU law-related matters, almost as if they applied a doctrine of avoiding EU law altogether.31 When the SCC decided to express its position, it acknowledged that the term ‘legally binding act’ in Article 7(2) SC was quite difficult to conceptualise. Nonetheless, the SCC held that ‘it can be undoubtedly concluded that the Treaty on Functioning of the European Union is such a legally binding act’. In the same decision the SCC invoked that any transfer of powers is governed by Article 7 (2) SC.32 Thus, the SCC sided squarely with the first group of scholars. Yet, in another judgment a few years later the SCC changed its approach and proclaimed that the position of EU Treaties in the Slovak legal order is governed not only be Article 1(2) SC, but also by Article 7(5) SC, as they can ‘undoubtedly’ be included in the categories covered by that provision.33 Unfortunately, the SCC neither elaborated on the previous decision nor did it explain its new strategy. Furthermore, there is no subsequent case law which might indicate which side of the pendulum the judges are ultimately choosing. The SCC at least ‘solved’ the conflict between Article 144(2) SC and the primacy of EU law. It concluded that judges from ordinary courts are under duty to give full effect to EU law, if necessary refusing its own motion to apply the contradicting provision of national legislation … and it is not necessary for the court to request or await the prior setting aside of such provision by legislative or other constitutional means.34

28 Eg Michael Siman, Miroslav Slašťan, Primárne právo Európskej únie, aplikácia a výklad práva Únie s judikatúrou. 3. vydanie (Bratislava, Euroiuris, 2010) 193. 29 Eg, Gabriela Dobrovičová, Martina Janošíková, ‘Ústava Slovenskej republiky a primárne právo Európskej únie’ in L Orosz et al (eds) 20 rokov Ústavy Slovenskej republiky (Košice, Univerzita Pavla Jozefa Šafárika v Košiciach, 2012) 186–87. 30 Ján Drgonec, Ústava Slovenskej republiky – Komentár (Bratislava, Heuréka, 2007) 128. 31 Martina Janošíková, ‘Desať rokov práva Európskej únie v judikatúre Ústavného súdu Slovenskej republiky’ in 10 rokov v EÚ: Vzťahy, otázky, problémy (Košice, Univerzita Pavla Jozefa Šafárika v Košiciach, 2014) 58. 32 Case Pl. ÚS 3/09, 26 January 2011, pt V.3.4. 33 Case Pl. ÚS 10/14, 29 April 2014, ECLI:SK:USSR:2015:PL.US.10.2014.1, para 69. 34 Case Pl. ÚS 3/09, 26 January 2011, pt V.3.4.

614  Robert Zbíral Thus, in a very EU-friendly decision the SCC in principle voided Article 144(2) SC in favour of EU principles. However, similarly to previous cases, there is little follow-up on how this approach is implemented in practice, neither in the case law of SCC nor in that of general courts.35 Despite the pointed-out repercussions, there are voices in Slovak academia that found the dispute between proponents of Article 7(2) and Article 7(5) futile, claiming that there is no reason why the relationship between primary EU law and the Slovak legal order could not be based on both provisions simultaneously, as they do not contradict each other (see also below). This option is also supported by an argument that it is in the end EU law that determines its effects in national legal orders.36

Article 7(4) (4) The validity of international treaties on human rights and fundamental freedoms, international political treaties, international treaties of a military character, international treaties from which a membership of the Slovak Republic in international organizations arises, international economic treaties of a general character, international treaties for whose exercise a law is necessary and international treaties which directly confer rights or impose duties on natural persons or legal persons, require the approval of the National Council of the Slovak Republic before ratification.

The other novelty brought by the euro amendment was the new classification of international treaties. The already discussed Article 7(2) SC specifically encompasses treaties that transfer exercise of rights to the EU. The more ‘general’ Article 7(4) SC lists seven substantive categories of treaties that require lower threshold than the Article 7(2) SC category. That is, approval of an absolute majority of deputies in the National Council is sufficient (Article 84(3) SC). A treaty could obviously fall into several of those seven categories at the same time. Surprisingly, neither the SC nor any other legislation says that these treaties are part of the Slovak legal order. This conclusion is only indirectly inferred from their publication in the official Slovak Collection of Laws.37 The euro amendment further introduced the possibility of ex ante constitutionality review of those treaties. The review is performed by the SCC and may be initiated by the president or the government before the proposal of the treaty is discussed in the National Council (Article 125a SC). The list of institutions entitled to initiate such a review does not favour frequent use of the procedure. This is because both institutions participate in the ratification process and in all probability wish to ratify the treaty.38 It is, thus, not surprising that in practice no proposal to review has ever been submitted.

Article 7(5) (5) International treaties on human rights and fundamental freedoms and international treaties for whose execution a law is not necessary, and international treaties which directly confer rights or impose duties on natural persons or legal persons and which were ratified and promulgated in the way laid down by a law shall have precedence over laws. 35 Bobek, Vikarska, ‘Slovakia: between euro-optimism’. 36 See eg Alexander Bröstl, Ústavné právo Slovenskej republiky (Plzeň, Aleš Čeněk, 2013) 97. 37 Krošlák et al, Ústavné právo, 131. 38 Otherwise both actors would not negotiate or sign the given treaty in the first place. An (honest) attempt to ascertain if there are any potential conflicts makes little sense strategically, because the negative decision of the SCC may ‘surprise’ and complicate the ratification. It must be noted that if the treaty is ratified, no instrument exists in Slovakia that may invalidate a (unconstitutional) treaty (eg ex post constitutional review).

Slovakia  615 Article 7(5) SC identifies a set of treaties and specifies their legal effects. As the text indicates, such treaties shall have primacy over Slovak laws (statutes). But there are other important consequences as well. Such consequences are that (i) judges of ordinary courts are bound by these treaties when deciding on cases (Article 144(1) SC) and (ii) there is a possibility to limit the rights of local governments (Article 67(2) SC). Treaties adopted under Article 7(5) SC can be classified as a specific subgroup of the Article 7(4) SC treaties. To put it differently, certain international treaties that the National Council approved may gain ‘special status’. The decision whether a given treaty falls under Article 7(5) SC is to be made by reference to the ‘guidelines’ in that provision. However, because of the general nature of those categories, the decision is practically left to the actors involved in the ratification process. Specifically, the government might propose such classification39 and the final verdict remains with the National Council (Article 86(5) SC). It must be repeated that treaties that are subsumed under Article 7(2) SC are automatically classified as Article 7(5) SC treaties and enjoy the respective legal force. This was acknowledged by the SCC. However, its approach is only natural because when the Accession Treaty and Lisbon Treaty were approved by the National Council as Article 7(2) SC treaties, the National Council also adopted resolutions which categorised them as Article 7(5) SC treaties. The elaborate design created by the euro amendment encompasses all ongoing variations of EU integration process. To summarise, there are generally the following four options on how to categorise treaties in the Slovak constitutional order: i. ‘Unimportant’ treaties: these do not fall into any of the categories listed in Article 7(2) or (4) SC and do not require the approval of the National Council for their ratification. They do not enjoy precedence over Slovak laws. ii. Article 7(4) SC treaties: these must fall under one (or more) of the categories listed in Article 7(4) SC and require an absolute majority in the National Council. They do not enjoy precedence over Slovak laws. iii. Article 7(4) SC and Article 7(5) SC treaties: these must fall under one (or more) of the categories listed in Article 7(4) SC and require an absolute majority in the National Council. If the National Council decides that the treaty in question also fulfils the criteria listed in Article 7(5) SC, the treaty gains precedence over Slovak laws. iv. Article 7(2) SC and Article 7(5) SC treaties: these must transfer the exercise of certain rights to the EU and require a two-thirds majority in the National Council. If the National Council decides that the treaty in question also fulfils the criteria listed in Article 7(5) SC, which was so far done automatically for Article 7(2) SC treaties, the treaty gains precedence over Slovak laws.

B.  The Position of Euro Crisis Measures in the Constitutional Framework Following its EU accession, Slovakia indicated its wish to become a member of the eurozone as soon as possible. Preparations for adoption of the euro started in 2004 with the full support of Dzurinda’s right-wing coalition government. Robert Fico and his SMER party were much more reluctant about the common currency. However when Fico formed a government after the 2006 elections, he quickly realised that reversing the efforts would have had a very negative impact on



39 Art

32 of Government Legislative Rules, 4 May 2016 (Legislatívné pravidlá vlády Slovenskej republiky).

616  Robert Zbíral the Slovak economy.40 Accession to the eurozone also enjoyed very high popular support. In a 2008 poll, 57 per cent of the Slovaks were happy about replacing the national currency and only 35 per cent were unhappy.41 Since the SC does not elaborate on monetary aspects, including the Slovak crown, no constitutional derogations or amendments were necessary for the adoption of the euro. Nevertheless, great changes were required at the statutory level. Therefore, after one of the most rigorous lawdrafting exercise in Slovak history, a special law on the introduction of the euro was adopted almost unanimously (137 out of 138 present deputies in favour) by the National Council in 2007.42 The law adapted the Slovak legal order on the operation of the euro and was accompanied by numerous regulations issued by various ministries and the Slovak National Bank.43 After successfully complying with the convergence criteria, Slovakia entered the eurozone on 1 January 2009. The constitutional dimension of implementing EMU-related laws relates first and foremost to the Constitutional Law on Fiscal Responsibility (CLFR). At the end of 2009, all Slovak parliamentary represented political parties agreed (at the instigation of a working paper from the Slovak National Bank) to prepare for a complex reform to ensure the sustainability of the public budget. The actual drafting was done by a cross-partisan expert commission and was based on the experience in fiscal responsibility rules and frameworks not only in other EU Member States, but also in the rest of the world. The bill was submitted to the National Council by a group of deputies in November 2011 and gained unanimous support for its adoption a month later.44 The main objective of the CLFR was to tighten fiscal responsibility through a multi-layered strategy. Firstly, a system of debt breaks was introduced. It prescribes a set of obligations and sanctions for the government if certain public debt thresholds (starting at 50 per cent of the GDP) are exceeded. The thresholds are at the same time continuously reduced until 2027. The debt of each municipality or region shall not surpass 60 per cent of its annual income. Secondly, a new institutional framework was established, the Council for Fiscal Responsibility being its most important part. This new independent body monitors and reviews government’s fiscal targets and their implementation; it also observes and evaluates long-term sustainability of the Slovak economy. While the new CLFR was primarily a domestically driven legislation and there was no direct relation to externally induced measures, the euro crisis obviously affected both its negotiation and outcome. One of the most complex legislative measures agreed at the EU level during the euro crisis was reform of the Stability and Growth Pact by a collection of five regulations and one directive (the Six Pack), adopted in November 2011. Slovakia fully endorsed the package during the negotiations. The majority of obligations from the Six Pack that required national implementation were reflected in the above-mentioned CFLC drafted at the time of the Six Pack legislation’s preparation. Certain changes to states’ budgetary procedure, including the rules of the European Semester, were transposed through amendment of the Law on Budget Rules of the Public Service.45

40 For discussion on the positions of Slovak governments towards introduction of the Euro between 1998 and 2008, see Darina Malová, ‘Politický kontext strategického rozhodovania na Slovensku: prípadová štúdia podpory „rozpočtovej zodpovednosti”‘’ (2014) 6 Prognostické studie 22–28. 41 European Commission, ‘Slovaks ready for the euro’, 14 November 2008, www.ec.europa.eu/economy_finance/ articles/euro/article13378_en.htm. 42 Law no 659/2007 Coll. 43 For all relevant legislative acts and detailed commentary of the Law no. 659/2007 Coll., see Štefan Hrčka, Generálny zákon o eure a vykonávacie předpisy (Bratislava, Národná banka Slovenska, 2008). 44 Constitutional law no. 493/2011 Coll. 45 Law no 523/2004 Coll, amended through Law no 59/2012 Coll.

Slovakia  617 Another EMU instrument adopted during the euro crisis and related to CFLC was the Treaty on Stability, Coordination and Governance (TSCG) in the EMU, also known as the Fiscal Compact. The main dilemma in the Slovak ratification process of the Fiscal Compact was whether it qualified as an Article 7(2) SC treaty that transfers further competences to the EU. Most foreign academic sources tended to argue that this was indeed the case and that the EU institutions gained new powers.46 An explanatory report prepared by the government, however, discussed the issue only implicitly and claimed that the Fiscal Compact was completely independent of primary EU law and gave the EU institutions a merely advisory role. Based on this (rather puzzling) conclusion, the Fiscal Compact was approved for ratification by the National Council in December 2012 as an Article 7(4) SC treaty requiring only a national statutory implementation. As outlined above, the essence of the Fiscal Compact was reflected in the CFLC. However, as its fiscal rules were based on debt breaks and not the required structural deficit,47 deputies decided to add a very detailed provision into the Law on Budget Rules of the Public Service which defines the criteria for balanced state budget, including the direct reference that public administration is obliged to follow procedures anticipated by the Fiscal Compact and other secondary EU legislation.48 The euro crisis also instigated other changes that fell into the general framework that was presented in the previous section. However, it did not directly affect the Slovak constitutional order. The ratification of the EFSF Framework Agreement was approved by the National Council in August 2010 and was classified as an Article 7(4) SC treaty. Because the treaty required implementation through national law, Article 7(5) SC did not apply. The result was the Law on Specific State Guarantees, which was adopted in September 2010.49 This stipulated that the amount of guarantees provided between 2010 and 2013 might not exceed 4.4 billion euros and that the Ministry of Finance was responsible for the financing and the decision-making related to the guarantees. When the eurozone states agreed to increase the size of the EFSF guarantees and Slovakia finalised the painful ratification process (see below), the law was amended and the limit was increased to 7.7 billion euros.50 After the 2012 parliamentary elections, the opposition parties submitted a proposal to condition any provision of financial aid within the EMU framework by Slovakia to a debate and a subsequent consent of the National Council. Such change would have required an amendment both to the Law on Specific State Guarantees and Constitutional Law no 397/2004 which sets the relationship between the government and National Council (see also section V). The ruling SMER did not support the initiative and the bill eventually died in the National Council. In March 2011, the European Council adopted a decision that amended Article 136(3) TFEU51 by utilising for the first time the simplified treaty revision procedure. Unlike some other Member States, Slovakia had not adapted its legal order to this procedure after the Lisbon Treaty entered into force. The government decided to treat the European Council decision as a standard treaty and submitted it to the National Council for ratification. The explanatory report accompanying the proposal classified the decision as an Article 7(4) SC treaty, rather than an Article 7(2) SC one. The government accepted the logic of the simplified revision procedure and argued that no new competences were transferred to the EU level by the TFEU amendment. The National Council 46 Eg Paul Craig, ‘The Stability, Coordination and Governance Treaty: Principle, Politics and Pragmatism’ (2012) 37 European Law Review 231. 47 See also Vladislav Mičátek, Mykola Sidak, ‘Fiškálna zmluva a právne naplnanie rozpočtovej zodpovednosti štátu’ (2013) 65 Justičná revue, 1414–15. 48 Amended by Law no 436/2013 Coll. 49 Law no 381/2010 Coll. 50 Amended by Law no 329/2011 Coll. 51 Decision of the European Council no 2011/199, 25 March 2011.

618  Robert Zbíral provided its approval in May 2012 and additionally concluded that the decision also falls under Article 7(5) SC and shall, therefore, enjoy precedence over Slovak laws. However, since the original European Council decision was not published in the official Collection of Laws of the Slovak Republic, it is not clear whether it had achieved that status.52 The amendment of Article 136(3) TFEU served primarily as means to establish a legal basis for a permanent emergency fund. The simultaneously negotiated ESM Treaty was signed in July 2011 and its renegotiated version in February 2012. In Slovakia, the treaty was classified as the EFSF Framework Agreement, to which Article 7(2) SC did not apply due to the lack of a competence transfer. Thus, the National Council placed the ESM Treaty in the Article 7(4) SC category when it ratified it in June 2012. Its classification as an Article 7(5) SC treaty was rejected because an implementing law was required. The existing Law on Specific State Guarantees was considered inadequate as a domestic framework for the ESM and the National Council adopted a new Law on European Stability Mechanism.53 That law provided for the payment of basic capital amounting to 659 million euros and entrusted the representation of Slovak interests in the ESM structures to the Ministry of Finance. Several proposals from the opposition deputies aimed to ensure significant involvement of the National Council in the ESM scrutiny process but all of them eventually failed due to the disapproval of the government. The only decisions which require ex ante consent by the National Council are changes in the guarantees’ distribution key among the participating states or changes to the maximum sum of funds available to the ESM.

IV.  Constitutional Obstacles to EMU Integration The euro crisis and the legal instruments that were aimed at its containment and the prevention of its repetition did not attract constitutional complaints in Slovakia. Thus, the discussion of constitutional obstacles to EMU integration is bound to remain rather abstract and largely based on the general limits to further EU integration. The natural starting point is the ‘euro clause’ in Article 7 (2) SC that enables Slovakia to ‘transfer the exercise of a part of its rights’ to the EU. Notwithstanding the already criticised inappropriate use of the term ‘rights’, the textual interpretation of the provision suggests two kinds of limit. First, only the exercise of a right is transferred, not the rights itself. During negotiations of the euro amendment in the National Council, an alternative version was considered, which proposed to enable a ‘transfer of part of sovereignty‘. However, the deputies rejected it as too far-reaching.54 Secondly, only part of the rights could be transferred. Logically this precludes situations where all rights of Slovakia are exercised by the EU. The obvious problem with this limit is its scope. Does it mean that a transfer of 99 per cent of the rights will still qualify as acceptable? What is the threshold? Is it only quantitative? Unlike the Czech CC, which at least provided some indication on the wider context of similarly worded provision in the Czech Constitution,55 the SCC has so far not elaborated on the meaning of the phrase and its impact remains unclear. Lastly, Article 7(2) SC does not condition the transfer to the fulfilment of any substantive aims. This is interesting because such requirement is not only anticipated by some other Member States

52 See Janošíková, ‘Ústava Slovenskej republiky’‘ 261. 53 Law no 296/2012 Coll. 54 Ján Azud, ‘K otázke vplyvu vstupu do EÚ na suverenitu SR v kontexte čl. 7 Ústavy Slovenskej republiky’ (2003) 63 Právny obzor, 596. 55 See Case Pl. ÚS 19/08, 26 November 2008, ECLI:CZ:US:2008:Pl.US.19.08.1, para 95–120.

Slovakia  619 constitutions,56 but, more importantly, Article 7(3) SC conditions the membership of Slovakia in collective security organisations on the necessity of that organisation to contribute to maintaining peace and democratic order. Therefore, the EU is given a ‘free pass’. Other parts of the SC are only partly relevant for the construction of limits to EU (and EMU) integration. Article 12 SC states that fundamental rights are ‘inalienable, imprescriptible and irreversible’. However, that could hardly be used as a shield against the expansion of EU powers. Other than that the SC does not contain any provisions, which would resemble a nontransferrable core. Article 1(1) SC establishes Slovakia as ‘a sovereign and democratic state’. There are opinions claiming the principle of sovereignty is part of the (unwritten) material core of the SC57 or invoking that protection of Slovak sovereignty presupposes the inferiority of EU law to the Slovak constitutional order.58 However, they remain in the realm of academic doctrine. The brevity of SC in setting clearly identifiable limits to further EU integration is similar to that of almost all other Member States. The doctrines that keep the transfer of national competences to the EU in check have been developed mainly by the highest national courts. However, the SCC has not joined many of its European counterparts in subscribing to the ultra vires or national identity bases for review. The SCC does the exact opposite. In one of the already cited decisions, apart from urging the judges of general courts to apply the primacy of EU law, a similar duty was placed on ‘all public bodies’ that were obliged to exclude the application of domestic law that contradicts EU law ‘ex officio’.59 The term ‘all public bodies’ seemed to include the SCC as well, and scholars interpreted the SCC’s position as acceptance of the primacy of EU law before any norm of national law, including the Constitution.60 The current president of the SCC, writing extra-judicially, confirmed that such understanding of the decision was in principle correct.61 Unfortunately, the judges provided no reasoning for their conclusion.62 Nevertheless, even though the decision did not explicitly discuss (let alone set) any limits to further EU integration, its outcome definitely has a Euro-optimistic nature and hardly anticipates constraints on future integration efforts. Reflecting the legacy of Czechoslovak federation, the SC contains a provision that presumes a major shift in Slovak sovereignty. According to Article 7(1) SC, Slovakia may enter into a state union with other states. Such a step shall be confirmed by an obligatory referendum and subsequent constitutional law. There are intense debates in the Slovak academic sources as to the meaning of this provision.63 For our analysis the most relevant aspect is its possible application to the EU integration process. In other words, the question stands how much the EU’s character corresponds to the term ‘state union’. It is notable that already in the early 2000s the Ministry of Justice recommended that Article 7(1) SC should have served as the basis for the Slovak accession to the EU.64 The relationship between Article 7(1) SC and the nature of the EU was addressed headon by the SCC during the ratification of the Treaty Establishing a Constitution for Europe. 56 Eg, Greece, Sweden or Denmark. 57 Boris Balog, Materiálne jadro Ústavy Slovenskej republiky (Žilina, Eurokódex, 2014) 25. 58 Ján Drgonec, ‘Ústavné a úniové právo: začneme hladať rozumnú rovnováhu?’ (2013) 65 Justičná revue 1470. 59 Case Pl. ÚS 3/09, 26 January 2011, pt V.3.4. 60 Tomáš Lalík, ‘Ústavnoprávna povaha Európskej únie’ in L Cibulka (ed), Ústavné právo Slovenskej republiky (štátoveda) (Bratislava, Právnická fakulta UK, 2013) 252. 61 Ivetta Macejková, ‘Právo Európskej únie v judikatúre Ústavného súdu Slovenskej republiky’ in E Barány (ed), Jako právo reaguje na novoty (Bratislava, VEDA, 2015) 208. 62 For possible explanations see Max Steuer, ‘Constitutional Pluralism and the Slovak Constitutional Court: The Challenge of European Union Law’ (2018) 8 The Lawyer Quarterly 124–26. 63 Eg, Drgonec, Ústava Slovenskej republiky (2015) 182–85. 64 Krošlák et al, Ústavné právo 136.

620  Robert Zbíral A group of citizens submitted a constitutional complaint in 2005, arguing that the adoption of the Constitutional Treaty would transform the EU into a state union and therefore the ratification process should have met the conditions anticipated in Article 7(1) SC. Since the ratification process followed Article 7(2) SC, no (obligatory) referendum was organised, it was argued that the right of citizens to participate in public affairs (Article 30 SC) was violated. The SCC disagreed and rejected the complaint.65 It primarily declared that even if the reforms brought by the Constitutional Treaty were implemented, the EU would not be transformed into a state union in the sense of Article 7(1) SC and the regime of Article 7(2) SC was still applicable. However, at the same time the SCC acknowledged that the EU already exercised many state functions, and developments in the EU undoubtedly were proceeding in the direction of a future state.66 Unfortunately, the judges provided no criteria that would allow identification of how (or when) the EU would meet the ‘state union’ classification. Nevertheless, they added that such a question is in principle irrelevant, because Article 7(1) SC may never be applied to the relationship between Slovakia and the EU, irrespective of the (future) character of the latter entity. This is a puzzling conclusion. Does it mean that even if the Member States decide to explicitly establish the EU as a state union, Article 7(2) SC would still apply and no referendum would be required?67 The decision was criticised by numerous scholars,68 and again, there has been no follow-up in the SCC’s case law allowing for some sort of a consistent doctrine towards the debated issue to be established. The exposition above shows that neither the Slovak constitutional order, nor the case law of the SCC defines any tangible constraints on further expansion of EU competences. None of the analysed issues have been specifically raised in the EMU context and there is no reason why the generally EU-friendly framework should not apply to various EMU reform proposals issued by the Commission in 2017. At the same time, the initiatives are not accepted unconditionally. The following observations resulted from the preliminary negotiating mandates prepared by responsible ministries: –– Strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States:69 while the Ministry of Finance supports incorporation of TSCG into the EU legal order, it concludes that the draft directive considerably diverges from the Fiscal Compact. The proposal does not clearly indicate how the national implementing legislation shall be amended and the impact of the draft directive on the CLFR cannot be estimated. Any position of Slovakia towards the proposal is thus premature at the moment.70 –– Common provisions on the European Funds:71 Slovakia agrees that the implementation of structural reforms in the Member States is an indispensable part of an effective EMU, 65 Case II. ÚS 171/05, 27 February 2008. 66 Case II. ÚS 171/05, 27 February 2008. 67 See the discussion of the example in Martina Janošíková, Komunitárne právo v judikatúre ústavních súdov SR a ČR (Trnava, Trnavská univerzita, 2009), 72–73. 68 See eg. Juraj Gyarfáš, ‘Ústavný súd a Zmluva o ústave pro Európu: Niekoľko poznámok k argumentácii ústavního súdu’ (2009) 69 Právný obzor, 192–194. 69 European Commission, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States. 70 Predbežné stanovisko Ministerstva financií Slovenskej republiky, 17 May 2018, available at www.nrsr.sk/ssez/downloadDoc.ashx?DocID=5984. 71 European Commission, ‘Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006’, COM (2017) 826.

Slovakia  621 including reforms performed within the European Semester. However, the proposed framework is not suitable for achieving the set objectives and would only increase administrative burden on the Member States and endanger the principles of the EU cohesion policy.72 –– European Monetary Fund:73 the Ministry of Finance supports almost all objectives of the proposals with the exception of the new majority decision-making. However, the implementation of the European Monetary Fund into the EU legal order through regulation is not viewed as a priority, the proposed changes might be achieved within the ESM Treaty. Even if adopted, the Ministry foresees no impact on Slovak legislation.74 There have been no wider political or academic discussions on the listed proposals in Slovakia. All negotiating mandates were adopted without any objections during the ex ante scrutiny in the National Council committees. Parts of the 2017 EMU reform package that were not proposed as drafts of binding EU legislation75 had not even been reviewed by the ministries and no negotiating mandate towards them exists. The Committee of European Affairs of the National Council only took them ‘in consideration’ en bloc together with hundreds of other EU documents.76 Despite the overall lack of constitutional obstacles to further integration, the situation should not in my opinion be viewed as an unconstrained free pass. Some scholarly texts consider the SCC’s case law as mainly too lenient towards EU law, labelling it as ‘tolerance to ring-fencing of sovereignty‘ and calling for stricter review of transfer of EU competences by the SCC.77 Such future development is not excluded. As was indicated throughout this section, the case law of SCC is still underdeveloped and rather abstract. The judges have actually never dealt with a concrete situation which would have forced them to consider ‘who has the upper hand’.78 Experience from the Czech Republic proves that even without any amendment to the constitutional order, the attitude of constitutional courts could change from rather positive towards EU integration to very negative if the concrete case and its circumstances are ‘ripe’ for such a change.79 The SC certainly contains sufficient ammunition for the SCC to revise the current Euro-optimistic framework if it has the motivation to do that.

72 Predbežné stanovisko Úradu podpredsedu vlády SR pre investície a informatizáciu, 22 February 2018, available at www.nrsr.sk/ssez/agenda.aspx?agendaId=7158. 73 European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund‘, COM (2017) 827. 74 Predbežné stanovisko Ministerstva financií Slovenskej republiky, 12 February 2018, available at www.nrsr.sk/ssez/ downloadDoc.ashx?DocID=5726. 75 Eg, European automatic macroeconomic stabilisation function in European Commission, ‘Communication on new budgetary instruments for a stable euro area within the Union framework’, COM (2017) 822; European Commission, ‘Communication on a European Minister of Economy and Finance’ COM (2017) 823. 76 Uznesenie Výboru Národnej rady Slovenskej republiky pre európske záležitosti, 8 February 2018, available at www. nrsr.sk/ssez/DownloadDoc.ashx?DocID=5723. 77 Ján Drgonec, ‘Ústavné a úniové právo v ochrane základných práv a slobod (Výslnie a tiene Charty základných práv Európskej únie)’ (2017) 67 Justičná revue 23. 78 Consider the case of constitutional reviews of the European Arrest Warrant. Some supreme national courts had to solve the dilemma that the Framework Decision clashed with provisions in their Constitutions that barred extradition of citizens to another state. See eg, Jan Komárek, ‘European Constitutionalism and the European Arrest Warrant: In Search of the Limits of Contrapunctual Principles’ (2007) 44 CML Review, 9 In Slovakia this did not happen because such provision had already been pre-emptively removed from the SC by the euro amendment. 79 The Czech Constitutional Court’s attitude towards EU law and integration was positive, yet it did not stop it from proclaiming a Court of Justice decision ultra vires, see Robert Zbíral, ‘Czech Constitutional Court, judgment of 31 January 2012, Pl.US 5/12. A Legal revolution or negligible episode? Court of Justice decision proclaimed ultra vires’ (2012) 49 CML Review 1475.

622  Robert Zbíral

V.  General Constitutional Rules and Practice of Implementing EMU Secondary Legislation There are various ways through which national legal orders might be affected by EU integration. Primary law and instruments such as international treaties concluded outside the EU structure were discussed in section IV of this chapter. The present section concentrates on secondary EU law and provides a general framework on how Slovak political bodies are involved in the negotiation process at the EU level and subsequently how the adopted legislation is implemented at the domestic level. The dominance of executives in negotiating secondary (but also primary) EU law and efforts to involve national legislatures in the process form one of the cornerstones of the EU studies research agenda. The situation in Slovakia is quite similar to that in other Member States. The key contours of the relationship between the government and the National Council in EU affairs are framed by a constitutional law adopted in June 2004.80 Its rather brief text obliges the government to inform the National Council of any draft EU legislation or Slovak positions presented at the EU fora. The National Council has two weeks to give an opinion to such a draft or position, which is legally binding for ministers negotiating in the EU institutions. Deviation from the mandate is possible only in an ‘unavoidable case and with the need to take the interests of Slovakia in account’.81 Details on the cooperation are set in ordinary laws, namely the rules of procedure of the National Council.82 Both constitutional and statutory laws give the Slovak parliament strong formal competences of government scrutiny. The main responsibility lies with the Committee for European Affairs. A recent comparative study on the involvement of national parliaments in EU matters confirms the formally strong position of the National Council and evaluates its influence as intermediate.83 However, literature focusing in detail specifically on the Slovak case is more pessimistic and argues that in practice the level of scrutiny does not correspond to the statutory powers. The reasons behind that are well-known from other jurisdictions. In particular, they include a general lack of interest of deputies in EU matters, lack of expertise and administrative support and little time to discuss even important drafts of EU legislation.84 The EU policy cycle usually does not end with the adoption of secondary legislation, but with ensuring its effect in national legal orders. Member States utilise multiple diverging strategies of implementation of secondary EU law. The basic differences lie in the share of legislative and executive instruments and the ensuing involvement of national parliaments.85 Similarly to other post-communist countries that had a negative experience with important decisions made by Communist Party secretariats, Slovakia was wary of executive law-making. The constitutional embodiment of this approach is the so-called reservation of law (statute), stipulating that any duty to natural and legal persons shall be imposed only by law (Article 13(1)(a) SC). The euro

80 Constitutional law no 397/2004 Coll. 81 Art 2(5) Constitutional law no 397/2004 Coll. The provision does not elaborate what cases are unavoidable. 82 Law no 350/1996 Coll. 83 The evaluation varies across concrete competences, see Katrin Auel, Christine Neuhold, ‘Europeanisation’ of National Parliaments in European Union Member States: Experiences and Best Practices (Brussels, Green/EFA Group, 2018). 84 See Vladimír Bartovič, ‘National Council of the Slovak Republic in the EU Agenda: Giant in Theory, Dwarf in Practice’ in D Král, V Bartovič (eds) The Czech and the Slovak Parliaments after the Lisbon Treaty (Praha, Europeum, 2010) 47; Andrea Figulová, ‘The Slovak Parliament and EU Affairs: In Need of a Wake-Up Call’ in C Neuhold et al (eds) The Palgrave Handbook of National Parliaments and the European Union (Houndmills, Palgrave, 2015) 632. 85 For practice in various Member States see Sylvain Brouard et al (eds) The Europeanization of Domestic Legislatures (Heidelberg, Springer, 2012).

Slovakia  623 amendment breached this principle and gave the government an authorisation to issue regulations (labelled as ‘approximation regulations‘) that would execute obligations stemming from treaties adopted under Article 7(2) SC.86 In other words, the government might adapt regulations to implement EU legislation that would otherwise be reserved to laws requiring an adoption by the National Council. Slovakia was the only post-communist EU Member State that introduced such an instrument into its legal order.87 Detailed conditions on the usage of approximation regulations are provided by a special law.88 Accordingly, these acts could be issued only in listed sectors that overlap with main EU activities (financial services and banking law are included) and they could not limit fundamental rights and amend the state budget. A specific scrutiny mechanism was established requiring the government to submit a list of adopted approximation regulations to the National Council every six months. The latter may request the government to (re)submit any of the approximation regulation as a bill (proposal of law) to the National Council, which would then treat it as any other bill. In light of the framework above, Slovakia might have pursued an implementation strategy with dominant use of executive legislation that is typical eg, for France or the United Kingdom. Some academic commentators criticise the continuing utilisation of approximation regulations. While these might have been appropriate during the demanding accession process, nowadays they permit illegitimate and superfluous circumvention of standard parliamentary legislative procedures in ‘normal’ situations.89 Empirical data, however, do not corroborate this pessimistic view. About 60 approximation regulations are adopted annually, yet almost all of them implement only marginal (technical) secondary EU legislation,90 which does not even demand the mentioned exception from the reservation of law. However, one must acknowledge that the scrutiny role of the National Council is minimal. No approximation regulation has ever been requested to be resubmitted as a standard bill.91 Most of the obligations stemming from secondary EU legislation are implemented through statutory legislation, with the full involvement of the parliament. Research shows that of approximately 130 laws that are adopted on average by the National Council every year, about 45 laws (35 per cent) implement EU obligations. Similar to ex ante scrutiny, the data expose a rather low interest on the part of deputies in Europeanised legislation. Compared to purely ‘domestic’ bills, the EU-induced ones are less debated in the plenary or face fewer amendment efforts.92 The bills transposing EMU obligations are no exception. During the 2010–12 parliamentary period, which covered the ‘hot’ phase of the euro crisis, no bill related to the EMU made the list of the top 20 most debated bills.93 Legal effects of secondary EU law in the Slovak legal order are based on Article 7(2) SC (see also analysis above). This provision explicitly refers to ‘legally binding acts of the EU’ and awards them primacy over Slovak laws (statutes). Yet, because the term ‘legally binding acts’ is a Slovak

86 Art 120(2) SC, the exception to the reservation of law is covered by Art 13(1)(c) SC. 87 For example the Czech government submitted similar amendment to the Czech Constitution but it did not gather any support in Czech Chamber of Deputies; see Vít Schorm, ‘K mechanismům transpozice evropských směrnic do národního práva’ (1999)7 Časopis pro právní vědu a praxi 151. 88 Law no 19/2002 Coll. 89 Eg, Milan Hodás, ‘Niektoré právno-teoretické problémy preberania smerníc’ in J Pogáčová et al (eds) Komunitárne právo na Slovensku: Pät rokov po (Bratislava, Slovenská asociácia európskeho práva, 2009) 44. 90 Usually delegated acts issued by the Commission. 91 For more detailed discussion on the empirical use of approximation regulations see Robert Zbíral, ‘Kvantitativní rozbor evropeizace slovenského práva’ (2015) 67 Justičná revue 1014 1021–23. 92 A detailed empirical overview is provided in Robert Zbíral, ‘Comparing the intensity of scrutiny for ‘“’domestic” and implementing bills: does transposition of EU law reduce political contestation in national parliaments?’ (2017) 24 Journal of European Public Policy 969. 93 Dataset available with the author. Debates on international treaties are excluded.

624  Robert Zbíral original ‘invention’ and there is no matching counterpart at the EU level, confusion emerges which EU acts are actually covered by this provision. The prevailing scholarly view interprets the concept literally. It argues that recommendations and opinions are excluded from the scope of Article 7(2) SC, but that the case law of the Court of Justice of the EU (CJEU) is included.94 The position of directives is the most controversial. However, a consensus seems to emerge in the doctrine that they might also be characterised as legally binding EU acts.95 This conclusion was also (indirectly) supported by the SCC.96 Obviously, the caveat that was already raised on the position of primary EU law might be applied to the provision setting the effects of secondary EU law in the Slovak legal order as well. The clause is in principle redundant and to some extent even ‘anti-European’, because the status of EU law in national legal orders is governed by the EU law itself. The EU measures adopted during the euro crisis in practice instigated only a few new Slovak laws or amendments to the existing ones. Most of them were mentioned in section IV in relation to corresponding primary EU law changes or the adoption of new treaties. A completely new law had to be adopted to allocate competences to Slovak political organs stemming from various provisions anticipated mainly by the TSCG.97 The prime minister represents Slovakia at the eurozone summits that discuss basic rules in the fields specified by the Fiscal Compact. The Ministry of Finance is responsible for submitting programmes of budgetary and economic cooperation to the EU institutions. Based on the proposal by the Ministry of Finance and after the approval of the government, the Ministry of Justice initiates the proceedings at the CJEU against a party of the TSCG that fails to comply with its conditions. If certain criteria are met, the Ministry of Finance is obliged to submit such a proposal.98 The Ministry of Finance may propose the initiation of the proceedings even on its own accord, without waiting for a report of the Commission, if it is convinced that another contracting party breaches the condition of the Fiscal Compact. The law does not foresee any involvement of the National Council. However, its influence is at least formally ensured by the general legislation regulating the relationship between the government and legislature, namely the cited Constitutional law no 397/2004 Coll.

A.  Political Dimension of Implementation of EMU Related Law The introduction of the euro in Slovakia came at an unfortunate moment, as it overlapped with the emerging symptoms of the euro crisis. Slovakia found itself in a unique position among eurozone members. It had to undergo painful reforms in order to meet the Maastricht criteria. At 47 per cent of the GDP in 2010, its public debt was the third lowest in the eurozone. The Slovak banking sector was in healthy condition also due to stabilisation at the beginning of the millennium, which had required large subsidies from the public sector. Last but not least, the Slovaks are a nation with one of the most positive attitudes towards EU integration. At the same time, the country was probably the least economically developed member of the eurozone. In 2010,

94 See also Dagmar Lantajová, Iveta Hricová, ‘Ústavnoprávné aspekty prednosti „právne záväzných aktov Európskych společenstiev a Európskej únie” před zákonmi Slovenskej republiky’ in Days of Public Law Conference Proceedings (Brno, Masarykova Univerzita, 2008) 87. 95 For the detailed discussion see Drgonec, ‘Ústavné a úniové právo’, 1474–76. 96 Pl. ÚS 440/2011, 11 November 2012. 97 Law no 36/2013 Coll. 98 Eg, if Slovakia holds the EU Presidency or if Slovakia is not listed in the Commission report as a state that does not fulfil its obligations to introduce the fiscal rules and correction mechanism.

Slovakia  625 it had the lowest GDP per capita, second highest unemployment rate (14.4 per cent)99 and by far the lowest public expenditure on pensions per capita (714 euros, compared to eg, 2,265 euros in Greece in 2010).100 These contradictory circumstances logically structured both public opinion and strategy of the political elites. Generally speaking, during the euro crisis Slovakia strongly supported policies of austerity and economic reform, while it was very cautious towards bail-outs of other Member States or mutualisation of debt guarantees. Given the existing accommodatory approach of the constitutional order towards EU and international law and the conflicting economic and social foundations, it is not surprising that resolving the crisis was viewed primarily as a political rather than a legal problem.101 From the outset, all actions aimed at mitigating the hot phase of the euro crisis became part of a fierce political battle in which political parties exploited the issues for domestic gains. Everything started in the spring of 2010 during the negotiations of the EFSF Framework Agreement and the (Greek) Intercreditor Agreement. Both agreements were signed by the Fico government. However, their content formed one of the most debated issues in a campaign leading to the parliamentary elections in June 2010. Prime Minister Fico defended the measures as necessary steps to ensure the stability of the euro, whereas the opposition criticised the conditions of the Greek bail-out and viewed the position of the government in the negotiations as too conciliatory. Fico’s SMER won the election but did not gain a majority and the government was formed by a broad right-wing coalition with Iveta Radičová as prime minister. The new government tried to renegotiate the conditions of Slovak participation in the EFSF. It insisted on a smaller contribution of the poorest eurozone countries, and involvement of the private sector. These efforts failed and the National Council eventually approved the ratification of the EFSF Agreement with an overwhelming majority under the original conditions. The result was different vis-à-vis the Intercreditor Agreement. The public discourse mostly presented it as unjust support of ‘rich’ Greece by ‘poor’ Slovakia, and despite heavy pressure from the EU institutions and other eurozone members, the government refused to support the Intercreditor Agreement and consequently the National Council did not approve it. In fact only two deputies supported it during the vote. As a result, Slovakia did not participate in the first Greek aid package. The political conflict further intensified during the negotiations and the implementation of the proposal to increase the EFSF guarantees in 2011. The cleavage grew not only between the government and the opposition, but within the government itself. A minor coalition partner, the political party called Svoboda a solidarita (Freedom and Solidarity) (the SaS party) headed by Richard Sulík, contested any further involvement of Slovakia in the rescue operations.102 The government waited until Slovakia was the last state to ratify, but then it was left with little choice and in September 2011 agreed to increase the guarantees, despite continuing resistance of ministers from the SaS party. Radičová decided to link the vote on the ratification of the ensuing treaty with a confidence vote. The gamble backfired as the National Council refused consent and the government had to resign. Enormous pressure from external actors and a need to resolve the domestic political crisis resulted in a compromise. SMER, which initially opposed the increase of

99 All cited statistical data available at data.oecd.org/. 100 Data on pensions available at appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do. 101 For more detailed overview of the political developments in Slovakia vis-à-vis the euro crisis, see Stefan Auer, ‘The Limits of Transnational Solidarity and the Eurozone Crisis in Germany, Ireland and Slovakia’‘ (2014) 15 Perspectives on European Politics and Society 322; Tomáš Dumbrovský, ‘Constitutional Change Through Euro Crisis Law: Slovakia’‘, mimeo, 2014, available at papers.ssrn.com/sol3/papers.cfm?abstract_id=2618854. 102 On the role of Sulík, see Stefan Auer, ‘Richard Sulík: A provincial or a European Slovak politician’?’ (2013) 19 Humanities Research 81.

626  Robert Zbíral guarantees, promised to support the ratification, if the parties in the government agreed to early parliamentary elections. Two days after the first vote, the National Council approved the ratification of the increase of EFSF guarantees with a vast majority. Parallel to the increase of the guarantees crisis, the dispute resonated throughout the ESM Treaty negotiations. Radičová’s government pushed for renegotiation of the originally agreed conditions and insisted that the calculation of the size of ESM guarantees should be based only on the size of the GDP, thus discounting the population criterion. Eventually a compromise among the eurozone members was reached, and countries with a GDP lower than 75 per cent of EU average (including Slovakia) had the majority of their share calculated according to GDP. The ESM Treaty was signed in February 2012 by the already outgoing government. Early parliamentary elections in March 2012 were won by SMER with absolute majority, and Fico formed a new one-party government. SMER’s critical attitude towards rescue efforts immediately changed after taking power. The government’s programme admitted co-responsibility for the fulfilment of EU’s strategic targets and the need to act as a constructive actor. In light of these facts, the approval of the National Council for the ratification of the ESM Treaty was never doubted. Nevertheless, the process resulted in a plenary discussion that spanned three days, with mainly SaS deputies blaming Robert Fico for not defending Slovak national interest but obediently following instructions from Brussels.103 Eventually the ESM ratification was supported by 118 deputies, while 20 were against.104 All other measures that the EU institutions or the eurozone members agreed upon were aimed primarily at constraining and reforming the existing ‘arm’ of the EMU. This did not cause any friction among Slovak political parties and the measures were implemented almost unanimously with practically no public discussion. Neither the SCC nor any other Slovak court reviewed any EU or national euro crisis measures. In fact no such proposal was even submitted. During the turbulent ratification process of the increase of the EFSF guarantees in September 2011, Richard Sulík promised to file a constitutional complaint. However, the reasoning did not target the content of the agreement but only the procedure. Namely, it was argues that the SC did not authorise the National Council to vote twice on the same issue.105 Sulík in the end decided not to submit the complaint.

VI.  Conclusion: Resulting Relationship between EMU Related Law and National Law The Slovak attitude towards the EU and EMU membership has been primarily predetermined by its economic dependence on the eurozone. The prevailing position of the political elites towards deepening integration was nicely summed up by the most dominant Slovak politician of the last decade, the three times Prime Minister Robert Fico, when he said in the National Council in 2013: In case of positive loss of sovereignty, let’s be sincere. Wasn’t the very accession to the EU already a loss of sovereignty? … We are too small, we cannot play to be the navel of the world. We are too vulnerable …

103 Minutes from the sessions are available at www.nrsr.sk/dl/Browser/Document?documentId=234757. 104 Apart from the sources above, the position of SMER party towards the EMU Treaty ratification is discussed by Pavlína Janebová, ‘Sociálně demokratické strany v ČR, Maďarsku a na Slovensku a jejich pozice k zavedení Evropského stabilizačního mechanismu’ (2016) 18 Středoevropské politické studie 171–96. 105 ‘Sulík: Opakované hlasovanie o eurovale chce dať na ústavný súd’ Nový čas, 13 October 2011, available at www.cas.sk/ clanok/208456/sulik-opakovane-hlasovanie-o-eurovale-chce-dat-na-ustavny-sud/.

Slovakia  627 Slovakia has to stay in the core of European integration; it has to be a part of the discussion on European integration.106

It is thus unsurprising that, with the partial exception of the SaS party, the remaining parliamentary parties eventually approved all measures aimed at reforming the EMU during the euro crisis. The presented ‘fatalistic’ view will most probably continue to dominate in foreseeable future and Slovakia will support further EMU integration. The Slovak minister of finance Peter Kazimir confirmed these expectations and at the end of 2017 presented his vision of transformation of the EMU into a fully functioning monetary and economic union.107 Despite the impact of the euro crisis and later problems such as migration, deepening of the EU integration remains popular with a majority of the Slovak public.108 The Slovak constitutional and legal order is well equipped for the EU-friendly attitude of the politicians. The complex provisions of the euro amendment have been able to encompass all EMU instruments adopted during the euro crisis without the need to change the SC, and there are no tangible constraints in the SC limiting the transfer of additional competences to the EU level. The SC even (indirectly) anticipates transformation of the EU (eurozone) into a full-fledged federation as it contains a provision allowing Slovakia to join a state union. The SCC case law on the relationship between Slovak and EU law is still underdeveloped. However, it appears to be very deferential towards developments at the EU level and so far the SCC has not given any indications that it plans to defend Slovak sovereignty. Of course its position could change, although, in light of the rather weak position of the SCC, this is unlikely. Even if the conclusion does not hold, the law is going to adhere to the presently dominant political preferences as expressed in the previous paragraph, including the possibility of amendment of the constitutional order if the need arises. To conclude, one can expect that Slovakia will not offer much resistance to the architects of deepening EMU integration.

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106 Quoted in Ľubica Šebeňová, ‘European Identity of the Selected Slovak Political Representatives during the Period of Eurozone Crisis’ (2017) 20 Politické vedy 67; the article analyses views of other Slovak politicians as well. 107 See ‘Eurozone needs to push on with banking, bailout reforms – Slovak finance minister’ Euractiv, 30 October 2017, availablefromwww.euractiv.com/section/economy-jobs/news/eurozone-needs-to-push-on-with-banking-bailout-reformsslovak-finance-minister/. 108 On the impact of the euro crisis on public opinion, see Ľubica Šebeňová, ‘The Impact of the Economic Crisis on the Perception of the European Identity in Slovakia’ (2015) 18 Politické vedy 76.

628  Robert Zbíral S Brouard et al (eds) The Europeanization of Domestic Legislatures (Heidelberg, Springer, 2012). A Bröstl, Ústavné právo Slovenskej republiky (Plzeň, Aleš Čeněk, 2013) 97. J Charvát, Petr Just, ‘Politické zemětřesení 2016? Dynamika stranického systému na Slovensku od roku 2002’ (2018) 21 Politické vedy 24. L Cibulka, ‘Ústava SR – trhací kalendár?’ in J Jirásek (ed) 25 let Ústavy České republiky – Aktuální otázky ústavního práva (Olomouc, Iuridicum Olomoucense, 2017). P Craig, ‘The Stability, Coordination and Governance Treaty: Principle, Politics and Pragmatism’ (2012) 37 European Law Review 231. G Dobrovičová, M Janošíková, ‘Ústava Slovenskej republiky a primárne právo Európskej únie’ in L Orosz et al (eds) 20 rokov Ústavy Slovenskej republiky (Košice, Univerzita Pavla Jozefa Šafárika v Košiciach, 2012) 186–87. J Drgonec, Ústava Slovenskej republiky (Bratislava, Beck, 2015) 313. J Drgonec, Ústava Slovenskej republiky – Komentár (Bratislava, Heuréka, 2007) 128. J Drgonec, ‘Ústavné a úniové právo v ochrane základných práv a slobod (Výslnie a tiene Charty základných práv Európskej únie)’ (2017) 67 Justičná revue 23. J Drgonec, ‘Ústavné a úniové právo: začneme hladať rozumnú rovnováhu?’ (2013) 65 Justičná revue 1470. T Dumbrovský, ‘Constitutional Change Through Euro Crisis Law: Slovakia’, mimeo, 2014, papers.ssrn.com/ sol3/papers.cfm?abstract_id=2618854. Euroactive, ‘Eurozone needs to push on with banking, bailout reforms – Slovak finance minister’ Euractiv, 30 October 2017, www.euractiv.com/section/economy-jobs/news/eurozone-needs-to-push-on-withbanking-bailout-reforms-slovak-finance-minister/. European Commission, COM (2017) 822 ‘Communication on new budgetary instruments for a stable euro area within the Union framework; European Commission covering a European automatic macro-economic stabilisation function‘. European Commission, COM(2017) 823 ‘Communication on a European Minister of Economy and Finance’. European Commission, COM (2017) 824 ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’. European Commission, COM (2017) 826 ‘Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006’. European Commission, COM (2017) 827 ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’. European Commission, ‘Slovaks ready for the euro’, 14 November 2008, www.ec.europa.eu/economy_ finance/articles/euro/article13378_en.htm. A Figulová, ‘The Slovak Parliament and EU Affairs: In Need of a Wake-Up Call’ in C Neuhold et al (eds) The Palgrave Handbook of National Parliaments and the European Union (Houndmills, Palgrave, 2015) 632. J Gyarfáš, ‘Ústavný súd a Zmluva o ústave pro Európu: Niekoľko poznámok k argumentácii ústavního súdu’ (2009) 69 Právný obzor 192–94. M Hodás, ‘Niektoré právno-teoretické problémy preberania smerníc’ in J Pogáčová et al (eds) Komunitárne právo na Slovensku: Pät rokov po (Bratislava, Slovenská asociácia európskeho práva, 2009) 44. Š Hrčka, Generálny zákon o eure a vykonávacie předpisy (Bratislava, Národná banka Slovenska, 2008). P Janebová, ‘Sociálně demokratické strany v ČR, Maďarsku a na Slovensku a jejich pozice k zavedení Evropského stabilizačního mechanismu’ (2016) 18 Středoevropské politické studie 171–96. J Jankuv, ‘Postavenie medzinarodných zmlúv v právnom poriadku Slovenskej republik’ in D Lantajová, J Jankuv, Teória aplikácie medzinárodnej zmluvy jako nástroja právnej regulácie na národnej, medzinárodnej a komunitárnej úrovni (Trnava, Trnavská univerzita, 2009) 32. M Janošíková, ‘Desať rokov práva Európskej únie v judikatúre Ústavného súdu Slovenskej republiky’ in 10 rokov v EÚ: Vzťahy, otázky, problémy (Košice, Univerzita Pavla Jozefa Šafárika v Košiciach, 2014) 58. M Janošíková, Komunitárne právo v judikatúre ústavních súdov SR a ČR (Trnava, Trnavská univerzita, 2009) 72–73. M Janošíková, ‘Ústava Slovenskej republiky a členstvo Slovenskej republiky v Európskej únii’ (2013) 59 Acta Universitatis Carolinae – Iuridica 253. J Komárek, ‘European Constitutionalism and the European Arrest Warrant: In Search of the Limits of Contrapunctual Principles’ (2007) 44 CML Review 9.

Slovakia  629 D Kosař, Perils of Judicial Self-Government in Transitional Societies (Cambridge, Cambridge University Press, 2016) 236–333. D Krošlák et al, Ústavné právo (Bratislava, Wolters Kluwer, 2016) 206–32. T Lalík, ‘Ústavnoprávna povaha Európskej únie’ in L Cibulka (ed), Ústavné právo Slovenskej republiky (štátoveda) (Bratislava, Právnická fakulta UK, 2013) 252. D Lantajová, I Hricová, ‘Ústavnoprávné aspekty prednosti „právne záväzných aktov Európskych společenstiev a Európskej únie” před zákonmi Slovenskej republiky’ in Days of Public Law Conference Proceedings (Brno, Masarykova univerzita, 2008) 87. I Macejková, ‘Právo Európskej únie v judikatúre Ústavného súdu Slovenskej republiky’ in E Barány (ed), Jako právo reaguje na novoty (Bratislava, VEDA, 2015) 208. D Malová, ‘Politický kontext strategického rozhodovania na Slovensku: prípadová štúdia podpory „rozpočtovej zodpovednosti”’ (2014) 6 Prognostické studie 22–28. J Marušiak, ‘The political system in the Slovak Republic’ in W Gizicki (ed), Political systems of Visegrad group countries (Trnava, University of ss Cyril and Methodius, 2012). G Mesežnikov, O Gyárfášová, ‘Slovakia’s Conflicting Camps’ (2018) 29 Journal of Democracy 78. V Mičátek, M Sidak, ‘Fiškálna zmluva a právne naplnanie rozpočtovej zodpovednosti štátu’ (2013) 65 Justičná revue, 1414–15. L Orosz, ‘Spôsoby presadzovania ústavných zmien v doterajšej ústavnopolitickej praxi v Slovenskej republike’, mimeo, www.ustavnysud.sk/documents/10182/992164/bratislava2012.pdf/589389e4-ea5 2-48ed-84e6-13cf83591ae0. L Orosz, ‘Poznámky k novele Ústavy Slovenskej republiky’ (2001) 140 Právník 969. M Ovádek, ‘Slovakia Tackles Its Constitutional Skeleton in the Closet’ (7 June 2017) Int’l J Const L Blog, www.iconnectblog.com/2017/06/slovakia-tackles-its-constitutional-skeleton-in-the-closet/. Predbežné stanovisko Ministerstva financií Slovenskej republiky, 12 February 2018, www.nrsr.sk/ssez/ downloadDoc.ashx?DocID=5726. Predbežné stanovisko Ministerstva financií Slovenskej republiky, 17 May 2018, www.nrsr.sk/ssez/ downloadDoc.ashx?DocID=5984. Predbežné stanovisko Úradu podpredsedu vlády SR pre investície a informatizáciu, 22 February 2018, www. nrsr.sk/ssez/agenda.aspx?agendaId=7158. C Schmitt, Verfassungsslehre (Berlin, Duncker und Humblot, 2003). V Schorm, ‘K mechanismům transpozice evropských směrnic do národního práva’ (1999)7 Časopis pro právní vědu a praxi 151. Ľ Šebeňová, ‘European Identity of the Selected Slovak Political Representatives during the Period of Eurozone Crisis’ (2017) 20 Politické vedy 67. Ľ Šebeňová, ‘The Impact of the Economic Crisis on the Perception of the European Identity in Slovakia’ (2015) 18 Politické vedy 76. M Siman, M Slašťan, Primárne právo Európskej únie, aplikácia a výklad práva Únie s judikatúrou. 3. vydanie (Bratislava, Euroiuris, 2010) 193. P Spáč, ‘Slovakia: In Search of Limits’ in V Hloušek (ed) Presidents Above Parties? Presidents in Central and Eastern Europe, Their Formal Competencies and Informal Power (Brno, Muni Press, 2013). M Steuer, ‘Constitutional Pluralism and the Slovak Constitutional Court: The Challenge of European Union Law’ (2018) 8 The Lawyer Quarterly 124–26. R Zbíral, ‘Czech Constitutional Court, judgment of 31 January 2012, Pl.US 5/12. A Legal revolution or negligible episode? Court of Justice decision proclaimed ultra vires’ (2012) 49 CML Review 1475. R Zbíral, ‘Comparing the intensity of scrutiny for ‘domestic’ and implementing bills: does transposition of EU law reduce political contestation in national parliaments?’ (2017) 24 Journal of European Public Policy 969. R Zbíral, ‘Kvantitativní rozbor evropeizace slovenského práva’ (2015) 67 Justičná revue 1014, 1021–23.

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26 Slovenia* MATEJ AVBELJ, ERAZEM BOHINC

Abstract: The Slovenian Constitution has been amended four times to facilitate the c­ ountry’s entry into the European Union. Article 3a of the Constitution defines the material and ­procedural conditions for Slovenian membership in the EU and subjects the latter to substantive ­constitutional limitations. Slovenia became a member of the euro area on 1 January 2007 after the European Commission and the European Central Bank released convergence reports on 16 May 2006 assessing Slovenia’s fulfilment of the Maastricht criteria. There is no specific constitutional ­provision relating to Slovenia’s membership in the Economic and Monetary Union. However, the amendment to the Constitution of May 2013 is a direct response to Slovenia’s e­ urozone-related duties. Fulfilling the requirements stemming from the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union constitutionalising the so-called golden fiscal rule, the Parliament amended Article 148 of the Constitution concerning the budget in May 2013. The Slovenian membership in the EMU has so far not posed any specific c­ onstitutional p ­ roblems and the political branches have been generally supportive of EMU’s deepening and further development. This declaratory commitment to EU law, however, has not always been present in practice. Key words: EU law, constitutional identity, transfer of sovereignty, Constitutional Court of the Republic of Slovenia.

I.  Main Characteristics of the National Constitutional System The Republic of Slovenia declared its independence on 25 June 1991. The Constitution1 defines Slovenia as a democratic republic, based on the principles of the rule of law and the welfare state. Recently, in a landmark decision the Constitutional Court of Slovenia (Constitutional Court) read into Article 1 of the Constitution (‘Slovenia is a democratic republic’) the guarantee of the protection of equal human dignity.2 Accordingly, the Slovenian constitutional democracy should be understood as a foundational democracy whose foundation and paramount normative objective is the protection of equal human dignity.3 * The research for this chapter has benefited from the support of the Slovenian Research Agency within the framework of the research project No. J5-1791 (A) “An integral theory on the future of the European Union. 1 Official Gazette of the Republic of Slovenia nos 33/1991-I, 42/1997, 66/2000, 24/2003, 69/2004, 68/2006, 47/2013 and 75/2016; see Arts 1 and 2. 2 Constitutional Court Case U-I-109/2010, 3 October 2011; ECLI:SI:USRS:2011:U.I.109.10. 3 Matej Avbelj, ‘Zgodovinska odločitev Ustavnega sodišča’ (2011) 39–40 Pravna praksa 17.

632  Matej Avbelj, Erazem Bohinc The Slovenian Constitution puts in place a system of separation of powers. According to Article 3 of the Constitution, the power is vested in the people; the citizens exercise it directly through elections, consistent with the principle of the separation of legislative, executive and judicial powers.4 In contrast to the former communist regime, the judiciary is now a distinct branch and independent from the government. Judges are to be independent in the performance of their judicial function and are bound exclusively by the Constitution and the statutes.5 Judges are tenured and enjoy all the privileges and immunities typical for a constitutional democracy.6 However, it is a remnant of the socialist past that judges are elected by the National Assembly on the proposal of the Judicial Council and can also be dismissed only by the National Assembly in rare cases provided by law.7 The highest court in the state is the Supreme Court.8 Its role is to rule as a last instance in criminal and civil cases, commercial lawsuits, administrative review, and labour and social security disputes. It, thus, decides on ordinary and extraordinary legal remedies. It might also perform other functions provided for by law.9 Slovenia also has a Constitutional Court, which, however, is not part of the ordinary judiciary. The Constitutional Court Act defines it as the highest body of the judicial power for the protection of constitutionality, legality, human rights, and fundamental freedoms.10 The Slovenian Constitution is a living constitution and the Constitutional Court is its main interpreter and the driving force behind it. The Slovenian legal system belongs to the continental legal family. Therefore, judicial decisions are not formally recognised as a source of law. This is de facto achieved on the basis of the principle of equality before the law ensuring equal protection of rights11 (like cases should be decided alike).12 Besides a posteriori concrete review, the powers of the Constitutional Court also include preventive constitutional review. The latter is limited to the adoption process for treaties (including EU Treaties) where the Constitutional Court delivers an opinion with a binding nature (erga omnes).13 The Constitutional Court has important competences in relation to the executive and the legislative branches. Inter alia, the Constitutional Court decides on the conformity of laws and other regulations (including local community regulations and general acts issued for the exercise of public authority) with the Constitution, ratified treaties and with the general principles of international law. As part of a posteriori concrete review, the Constitutional Court decides on constitutional complaints stemming from the violation of human rights and fundamental freedoms by individual acts, on jurisdictional disputes between the courts and other state authorities and on the unconstitutionality of the acts and activities of political parties. The Constitutional Court decides on an individual’s constitutional complaint only if legal remedies have been exhausted. The Constitutional Court decides whether to accept a constitutional complaint for adjudication based on criteria and procedures provided by law.14

4 Constitution Art 3. 5 Constitution, Art 125. 6 Constitution Art 129. 7 Constitution Art 130. 8 Constitution Art 127. 9 Ibid. 10 Official Gazette of the Republic of Slovenia No 64/2007, Art 1. 11 Constitution Art 22. 12 Aleš Galič, ‘“Argument of precedent” or Slovenian Constitutional Court’s Position on the Arbitrary Aberration from Case Law’ (2003) 1 Revus 44. 13 Arne Mavčič, ‘Dossier of the Constitutional Court of the Republic of Slovenia’ in A Mavčič (ed), Constitutional review systems around the world (Lake Mary FL, Vandeplas Publishing, 2018) 584. 14 Constitution, Art 160; Mirijam Škrk, ‘Odnos med mednarodnim pravom in notranjim pravom v praksi Ustavnega sodišča’ (2007) 62 Pravnik 280.

Slovenia  633 Slovenian constitutional culture is, however, marked by a great discrepancy between the law on the books, where Slovenia has always been regarded as a good disciple, and the law in action, where the Slovenian practical record is sometimes extremely poor. It would not be an exaggeration to argue that Slovenia suffers from a systemic crisis in the rule of law.15 As a result, Slovenia combines a modern, western liberal democratic constitution, with an old post-communist mindset and practice resulting from the personal continuity in the main public institutions with the cadre of the old communist system.

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments Slovenia is a moderate dualist country and differentiates between international law, EU law and national law.16 Article 8 of the Constitution, which provides a legal basis for the entry of international law into Slovenia’s legal system, stipulates that ‘the laws and other regulations must comply with generally accepted principles of international law and with treaties that are binding on Slovenia. Ratified and published treaties shall be applied directly’. Article 153 of the Constitution inter alia stipulates that the ‘laws must be in conformity with generally accepted principles of international law and with valid treaties ratified by the National Assembly, whereas regulations and other general acts must also be in conformity with other ratified treaties’ International law and domestic law are, thus, regarded as two separate legal systems.17 In the process of ratifying a treaty, the Constitutional Court, on a proposal of the president of the republic, the government, or one-third of the deputies of the National Assembly, issues an opinion on the conformity of such treaty with the Constitution.18 Article 75 of Foreign Affairs Act 119 stipulates that a treaty has to be ratified in order to be legally binding. Thus, the mere signing of a treaty does not constitute consent to be bound. The Constitution has been amended four times to facilitate Slovenia’s entry into the EU. Most notably, the Constitutional Act of 7 March 2003 amended the Constitution by introducing a new Article 3a (commonly referred to as the ‘European article’20) which inter alia amended how the referendum on the accession of Slovenia to the EU and NATO will be held. This subsequently also entailed that the relevant referendum and people’s initiative act had to be in conformity with this constitutional act.21 Article 3a defines the material and procedural conditions for Slovenian membership in the EU and subjects the latter to substantive constitutional limitations.22 In material terms, Slovenia 15 For the argument that follows see Matej Avbelj, ‘Transformation in the Eye of the Beholder’ in M Bobek (ed), Central European Judges under the European Influence: The Transformative Power of the EU Revisited (Oxford, Hart Publishing, 2015) 275. 16 Škrk, ‘Odnos med mednarodnim pravom in notranjim pravom v praksi Ustavnega sodišča’, 280. 17 Marko Novak, ‘Slovenska identiteta v primežu evropskega prava’ (2004) 2 Revus 95. 18 Constitution Art 160(2) and Constitutional Court Act Art 70. 19 Official Gazette of the Republic of Slovenia Nos 113/2003, 20/2006, 76/2008, 108/2009, 80/2010 and 31/2015. 20 Ciril Ribičič, ‘Uveljavljanje evropskih standardov v praksi slovenskega ustavnega sodišča’ (2004) 3 Revus 69; similarly also Novak, ‘Slovenska identiteta v primežu evropskega prava’, 95. 21 Official Gazette of the Republic of Slovenia No 24/2003 of 7 March 2003. 22 Art 3a reads as follows: ‘Pursuant to a treaty ratified by the National Assembly by a two-thirds majority vote of all deputies, Slovenia may transfer the exercise of part of its sovereign rights to international organisations which are based on respect for human rights and fundamental freedoms, democracy, and the principles of the rule of law and may enter into a defensive alliance with states which are based on respect for these values. Before ratifying a treaty referred to in the preceding paragraph, the National Assembly may call a referendum. A proposal is passed in the referendum if a majority

634  Matej Avbelj, Erazem Bohinc may only transfer ‘the exercise of a part of its sovereign rights’ to the EU. Thus, not even part, let alone all of Slovenian sovereignty is transferrable, and it must remain with the Slovenian people. Procedurally, the exercise of sovereign rights or part of them is further subject to three conditions. First, it can only happen through a treaty. Second, it must be ratified by the National Assembly with a qualified two-thirds majority of the representatives. Third, in accordance with the same article, a referendum may be called by the National Assembly. That referendum would require a relative majority to pass, that is, the majority of the voters who have taken part in the referendum must vote in favour. The National Assembly is bound by the result of such referendum. If such a referendum has been held, a further referendum regarding the law on the ratification of the treaty concerned may not be called. Additionally, Article 3a is also important because it provides for close parliamentary control over the executive branch in its activities on the supranational level, especially in the decisionmaking process of the EU Council. The details of this parliamentary control are further set out in the Act on Cooperation between the National Assembly and the government in EU affairs.23 The National Assembly participates in the formulation of Slovenian positions in EU affairs, as a plenum as well as with its two specialised committees: the Committee for European Affairs and the Committee for External Affairs.24 The National Assembly also discusses amendments to the founding Treaties.25 At least once a year the National Assembly discusses the state of EU affairs and the Slovenian position therein and adopts positions on the political guidelines for Slovenia’s activity in the EU institutions.26 The Government promptly informs the National Assembly of EU affairs that fall within its competence and reports on its executive decisions and thereto related activities within the EU institutions. The Government also informs the National Assembly of other documents that are relevant for the exercise of its constitutional powers and concern the political and programme aspects of the EU activity. On the proposal of the government or upon its own initiative, the National Assembly may also discuss other EU affairs.27 Slovenia became a full member of the EU on 1 May 2004. The country’s membership was decided in a referendum conducted on 12 March 2003, in which an overwhelming majority voted in favour of EU accession.28 Considering the importance and implications for the future of the country, the decision to hold a referendum was politically agreed among the parties in the

of voters who have cast valid votes vote in favour of the same. The National Assembly is bound by the result of such referendum. If such referendum has been held, a referendum regarding the law on the ratification of the treaty concerned may not be called. Legal acts and decisions adopted within international organisations to which Slovenia has transferred the exercise of part of its sovereign rights shall be applied in Slovenia in accordance with the legal regulation of these organisations. In procedures for the adoption of legal acts and decisions in international organisations to which Slovenia has transferred the exercise of part of its sovereign rights, the Government shall promptly inform the National Assembly of proposals for such acts and decisions as well as of its own activities. The National Assembly may adopt positions thereon, which the Government shall take into consideration in its activities. The relationship between the National Assembly and the Government arising from this paragraph shall be regulated in detail by a law adopted by a two-thirds majority vote of deputies present.’ 23 Official Gazette of the Republic of Slovenia, No 34/2004 of 2 April 2004. 24 The following draws closely on: Miro Cerar, ‘Slovenia: the Role of national parliaments in the European Union’ in GC Rodriguez Iglesias and L Ortiz Blanco (eds) Proceedings of the FIDE XXIV Congress Madrid 2010, Vol I: The role of national parliaments in the European Union (FIDE, 2010) 411. 25 Ibid 26. 26 Ibid.Art 5. 27 Ibid Art 4/3. 28 89.64% of the voters voted in favour of accession to the EU; see ‘Poročilo o izidu glasovanja in o izidu referenduma o pristopu Republike Slovenije k Evropski Uniji, ki je bil 23. Marca 2003’ (State Election Commission, 2003) www.dvk-rs. si/files/files/porocilo-o-referendumu-EU.pdf.

Slovenia  635 National Assembly and provision concerning holding a referendum was ex ante drafted in the aforementioned European article. The same referendum was also used to ask the voters to decide whether Slovenia should become a member of NATO.29 As mentioned above, the Constitutional Court may be asked by qualified petitioners to review and issue an opinion on conformity of a treaty (including EU treaties) with the Constitution. However, in the case of Slovenia’s EU accession treaty, members of the National Assembly unanimously confirmed the draft accession treaty. Thus, the Constitutional Court was not seised with a petition to conduct such a review. The reason for this was strong voters’ support as shown in the referendum, broad political consensus as well as acting in the interest of time to catch the next EU enlargement wave.30 Slovenia joined the eurozone on 1 January 2007 after the European Commission and the European Central Bank released convergence reports on 16 May 2006 assessing country’s fulfilment of Maastricht criteria.31 There is no specific constitutional provision relating to Slovenia’s membership in the EMU and there was no need to amend the Constitution to facilitate Slovenian membership in the EMU. The legal basis provided for in Article 3a of the Constitution is sufficiently abstract and inclusive to have incorporated also the legal and economic prerequisites tied to the EMU membership. However, the May 2013 amendment to the Constitution32 is a direct response to Slovenia’s eurozone-related duties. Fulfilling the requirements stemming from the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (Fiscal Compact)33 constitutionalising the so-called golden fiscal rule, the parliament amended Article 148 of the Constitution concerning the budget in May 2013. Accordingly, all revenues and expenditures for financing of public spending must be included in the budgets of the state.34 They must be balanced in the medium term without borrowing, or revenues must exceed expenditures. Temporary deviation from this principle is only allowed when exceptional circumstances affect the state.35 Actual implementation of the golden fiscal rule, as laid down in the Constitution, has been left to the Fiscal Rule Act36 (an implementing act) which is adopted by the National Assembly by a two-thirds majority vote of all deputies. The latter defines the manner and the timeframe of implementation of the golden fiscal rule, the criteria for determining exceptional circumstances, and the course of action in case they arise.37 Nevertheless, the statute mandated by the Constitution should have been adopted within a year of passing the constitutional amendment, due to the difficulty of winning the required qualified parliamentary majority for adoption. It was passed after more than two years, in June 2015. Its implementation was postponed further by the National Assembly elections and the Commission was in early phase of starting an infringement procedure.38

29 ‘15 years since consensus decision on EU and NATO, in Government of the Republic of Slovenia’ (Government of the Republic of Slovenia, 2018) www.vlada.si/en/media_room/newsletter/slovenia_weekly/news/article/15_years_since_ consensus_decision_on_eu_and_nato_61173/. 30 Novak, ‘Slovenska identiteta v primežu evropskega prava’, 95. 31 ‘Slovenia joins the euro area’ (European Commission, Economic and financial affairs, 2003) ec.europa.eu/economy_ finance/articles/euro/slovenia_joins_the_euro_area_en.htm. 32 Official Gazette of the Republic of Slovenia, No 47/2013 of 31 May 2013. 33 Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, 1 February 2012. 34 Constitution Art 142/1. 35 Constitution Art 148/2. 36 Official Gazette of the Republic of Slovenia, No 55/2015 of 24 July 2015. 37 Constitution Art 148/3. 38 ‘Poslanci potrdili zakon o fiskalnem pravilu’ (Rtvslo.si, 10 July 2015), www.rtvslo.si/slovenija/poslanci-potrdilizakon-o-fiskalnem-pravilu/369382.

636  Matej Avbelj, Erazem Bohinc Slovenia was thus de facto in an unconstitutional situation, in which the golden fiscal rule existed on the books but has not been operational in practice and was moreover one of the last EU Member States which had not yet implemented such a rule in the national legal system.39 At the time of amending the Constitution, Slovenia was in an excessive deficit procedure and was sometimes referred to as the next Cyprus and the next EU Member State where the troika would intervene.40 Therefore, swift implementation of the Fiscal Rule Act proved to be important to restore trust and confidence and, thus, access to international financial markets. The main reason for the belated implementation was the inability to reach a political consensus, rather than having substantive concerns. There was a broad consensus that sustainable public finances are needed and that there should be a budget surplus in times of plenty and that the budget deficit may be increased in times of need. One of the opposition parties questioned whether amending the Constitution was necessary, as this would limit the flexibility to amend and adapt such law in the future.41 By ratifying the Fiscal Compact, Slovenia committed itself to establish a Fiscal Council.42 A Fiscal Council was established in March 2017 as a new independent and autonomous state authority vested with powers to supervise and monitor the compliance with fiscal rules, as well as monitoring the implementation of the EU legislation regulating the economic governance in Member States (pursuant to Article 7 of the Fiscal Rules Act). The Fiscal Council has three members with a five-year mandate and is appointed by the National Assembly, following a proposal by the government.

III.  Constitutional Obstacles to EMU Integration Neither the Constitutional Court, nor any other Slovenian court has claimed competence to review the constitutionality of the secondary EU law. The Constitutional Court has taken EU law as treaty-based law as its point of reference (a so-called upper premise) for reviewing the validity of national statutes and by-laws. The use of international law in the attempts to resolve the euro crisis resulted in the above-mentioned Fiscal Compact and in the Treaty Establishing the European Stability Mechanism (ESM Treaty). Thus, they are not covered by the EU law provisions of the Slovenian Constitution. They have the status of international law in Slovenia. In practice, this means that they are hierarchically superior to the statutes, but inferior to the Constitution and that they are not endowed with a constitutionally privileged status of supranational law. As Slovenia was under financial duress and marred by a domestic political crisis during the negotiations leading to the adoption of the Fiscal Compact and the ESM Treaty, there was almost no political and/or legal discussion of these new financial legal instruments, which were basically adopted as a fait accompli. Rather surprisingly, in December 2012 the Constitutional Court banned a referendum on a statute, which was also indirectly intended to give full effect to the Fiscal Compact.43

39 Ibid. 40 Andrew Macdowall, ‘How Slovenia turned itself around’ (Politico, 15 July 2015), www.politico.eu/article/ slovenia-turns-itself-around-greece-bailout-bank-crisis/. 41 ‘Vlada pošilja zakon o fiskalnem pravilu v DZ’ (Delo.si, 4 December 2014), www.delo.si/novice/politika/vladapotrdila-predlog-zakona-o-fiskalnem-pravilu.html. 42 ‘What do we do – Fiscal Council of the Republic of Slovenia’ (Fiscal Council of the Republic of Slovenia), www.fs-rs.si/ what-do-we-do /. 43 Constitutional Court Case U-II-1/12, U-II-2/12, 17 December 2012; ECLI:SI:USRS:2012:U.II.1.12.

Slovenia  637 The Constitutional Court held that unconstitutional consequences would occur due to the suspension of the implementation or the rejection of the newly adopted law in a referendum. Efficient exercise of state functions (including the creation of conditions for the development of the economic system), exercise of human rights (in particular the rights to social security, security of employment, and free enterprise), respect for the binding international law obligations of the state, and ensuring the effectiveness of the legal order of the EU were held to have priority over the constitutional right to request a call for a referendum in circumstances of severe economic crisis. The National Assembly demonstrated that immediate implementation of the statutory measures is necessary in order to protect the above-mentioned values. Submitting the adopted laws for decision-making in referenda and their potential rejection at such referenda would, therefore, constitute unconstitutional consequences, provided that following a referendum the legislature cannot adopt a law contrary to the results of such referendum.44 In this case the Constitutional Court was willing to override the constitutional right to a referendum by giving precedence to a financial instrument of international law. This could be interpreted as meaning that not only the will of the people, but even the Constitution could bend to the demands of international law under financial duress, such as the one Slovenia was under at the peak of the economic crisis in 2012. In other words, in such exceptional circumstances, it is not the Constitution which sets the limits to international or EU law, but it is the other way around. In his concurring opinion, judge Dr Ernest Petrič underlined that the issue the Constitutional Court had to address was not an assessment as to whether the measures implemented by the statute in question really constitute the best possible solutions or not. Such an assessment would be an assessment of the suitability of statute which cannot be subject of a Constitutional Court decision. The National Assembly and the government bear the responsibility for the suitability of the statute. Therefore, the Constitutional Court only adjudged whether a referendum must be allowed.45 The substantive constitutional limitations to Slovenian membership of the EU consist of three groups and are clearly influenced by the jurisprudence of the German constitutional court. For EU law to apply in Slovenia in accordance with its own rules and principles, it must respect: (1) human rights and fundamental freedoms, (2) democracy and the principles of the rule of law, and (3) it must be adopted strictly within the competences conferred on the EU. However, so far, these substantive limitations have been on paper only. The Constitutional Court has explicitly refrained from adopting a position on whether there are certain instances in which the Slovenian Constitution requires the disapplication of EU law. Other than these three substantive constitutional limits to the application of EU law in Slovenia, the Constitution does not set out any a priori limits to the development of the process of European integration. Thus, there are no constitutional provisions on the formal limits to the (further) transfer of powers to the EU through Treaty amendments, such as ‘core competences’, ‘non-transferable’ constitutional identities, which ‘must’ remain with the national parliament etc. The Slovenian Constitution does not contain any explicit eternal clause (Ewigkeitsklausel) stipulating the so-called irreducible epistemic core of the national constitutional order. This stands for formal and substantive elements that any legal order has to preserve intact in order to count as an autonomous and independent legal order.46 44 Ibid, Abstract and Press Release. 45 Ibid, Concurring Opinion of Judge Dr Ernest Petrič, paras 1 and 2. 46 Neil Walker, ‘Late Sovereignty in the European Union’ in N Walker (ed), Sovereignty in Transition (Oxford, Hart Publishing, 2003) 28.

638  Matej Avbelj, Erazem Bohinc However, in the decision of the Constitutional Court on the constitutionality of the Arbitration Agreement between Slovenia and Croatia for the determination of the disputed sea and land borders between the two countries,47 the Constitutional Court invoked the Basic Constitutional Charter on the Sovereignty and Independence of the Republic of Slovenia as an applicable constitutional act and as such ‘a permanent and inexhaustible constitutional source of the statehood of the Republic of Slovenia’. The Constitutional Court explained the Basic Constitutional Charter48 as adopted on 25 June 1991 as the fundamental constituting state act of the Republic of Slovenia. With its adoption the Republic of Slovenia definitively broke its ties with the Socialist Federal Republic of Yugoslavia and established itself as a sovereign state. The Basic Constitutional Charter was, admittedly, invoked in a case unrelated to European integration. However, the Constitutional Court’s use of the phrase ‘permanent and inexhaustible source of the statehood of the Republic of Slovenia’ signals that the Constitutional Court might assert the same doctrine also against the EU law, if the need arises. However, no such EU law-related case has been brought to the Constitutional Court yet.

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law In recent years the Slovenian parliament has been extremely passive with regard to its involvement in EU law-related issues. There has been almost no substantial discussion of the Stability and Growth Pact Reforms and the parliament has basically abstained from being involved in EMU decision-making and adoption in secondary EU law. This is best demonstrated by the fact that since 2013 the Slovenian parliament has not sent a single opinion to the European Commission’s legislative proposals in the context of the subsidiarity control mechanism.49 However, the Constitutional Court has been more proactive. In its decision U-I-295/13 it made its first reference for a preliminary ruling to the Court of Justice of the European Union (CJEU).50 In September 2013, five Slovenian banks faced considerable capital shortfalls and were unable to cover the liabilities towards their creditors and cover the value of deposits. Consequently, the Bank of Slovenia (the Slovenian central bank) adopted several measures, which were later contested before the courts. The case concerns the constitutionality of the Banking Act,51 which implemented EU crisis-management mechanisms. Inter alia, it also implements the Banking Communication52 instructions (soft law) of the European Commission providing burden-sharing (ie bail-in) measures and the criteria for the compatibility of state aid granted to the financial institutions with the EU internal market rules.53

47 Constitutional Court Opinion Rm-1/2009, 18 March 2010, ECLI:SI:USRS:2010:Rm.1.09. 48 The Basic Constitutional Charter is a founding document of the Slovenian state that came into being on the basis of a plebiscite in the absence of a new constitution. The latter was adopted six months after independence. 49 Matej Avbelj, ‘Subsidiarnost kot zdravilo za vse tegobe?’ (Ius-Info Kolumne, 19 November 2018) www1.iusinfo. si/DnevneVsebine/Kolumna.aspx?Id=231497; ‘National Parliament opinions and Commission replies: Slovenia 2013’ (European Commission, Secreteriat-General), ec.europa.eu/dgs/secretariat_general/relations/relations_other/npo/slovenia/ 2013_en.htm. 50 Constitutional Court Case U-I-295/13, 6 November 2014; ECLI:SI:USRS:2016:U.I.295.13. 51 Official Gazette of the Republic of Slovenia, No 99/2010 of 7 December 2010. 52 Communication from the Commission on the application, from 1 August 2013, of state aid rules to support measures in favour of banks in the context of the financial crisis (referred to as the Banking Communication), [2013] OJ, C216/1. 53 ‘The Communication from the Commission on aid to the banking sector is valid’ (CJEU Press Release, 19 July 2016), No 80/2016.

Slovenia  639 The importance of the CJEU’s decision in that case54 is twofold. First, the CJEU reiterated that the Banking Communication is not capable of imposing independent obligations on the EU Member States. However, it does no more than establish conditions, designed to ensure that state aid granted to banks in the context of the financial crisis is compatible with the internal market, which the Commission must take into account in the exercise of the wide discretion that it enjoys under Article 107(3)(b) TFEU.55 The Banking Communication in its Article 45 provides for an exception by acknowledging that no burden-sharing may be imposed in case it would ‘endanger financial stability or lead to disproportionate results’.56 Secondly, on the bail-in provisions included in the Banking Communication and compatibility of bail-in measures with the general principle of proportionality, the CJEU ruled that the bail-in tool pursues two main objectives. It pursues the need to reduce to a minimum the necessary public expenditures for the rescue of banks and consequently to tackle the moral hazard.57 The CJEU found the bail-in tool to be in compliance with EU law. Abiding to the proportionality principle is assured by allowing EU Member States to grant state aid measures ex post, after the creditors have already contributed to the recovery of such financial institution, and, thus, ‘shared the burden’. Another relevant case addressing the relationship between the ECB, Bank of Slovenia and state prosecution relates to ongoing criminal investigations against the governor and vicegovernors of the Bank of Slovenia. In an official letter to the State Prosecutor General of Slovenia from July 2016, Mr Draghi formally protested against the alleged unlawful seizure of materials belonging to the ECB.58 Subsequently, legal actions have been taken. The Constitutional Court rejected as inadmissible constitutional complaints by the Slovenian central bank and the ECB with regards to the seizure of Bank of Slovenia data in 2016.59 In primis, this case concerns a rather under-researched topic on EU immunities (pursuant to Protocol no 7 to the Treaty of Lisbon on the Privileges and Immunities of the EU). At the same time, it touches upon a highly sensitive context of national criminal investigations into banking malpractices. In view of the EU’s current legal and political nature, the viability and acceptability of Protocol no 7 may be contested. In January 2019, the ECB referred Slovenia to the CJEU for failure to respect the protected status of materials belonging to the ECB and failure to cooperate sincerely. This case shows how important it is that further EMU integration should be conducted in a holistic manner, following EU constitutional principles (inter alia, principle of sincere cooperation) and addressing the actual legal and political nature of the EU. Unfortunately, in the eyes of the European citizens this case only supported the growing perception of illegitimacy and unaccountability of financial sector and its national and supranational supervisors.60 54 CJEU Case C-526/2014, 19 July 2016; ECLI:EU:C:2016:570. 55 Ibid, paras 43 and 44 of the decision. 56 Phedon Nicolaides, ‘Burden-sharing and state aid to banks’ (StateAidHub.eu, 13 September 2016), stateaidhub.eu/ blogs/stateaiduncovered/post/7165. 57 Lucchini S, Moscianese J, de Angelis I, Di Benedetto F, ‘Bank rescue in the European Union. From bail-out to bail-in’ (Kluwer Competition Law Blog, 8 August 2016), competitionlawblog.kluwercompetitionlaw.com/2016/08/08/ bank-rescue-european-union-bail-bail/. 58 Indicating that other legal steps would also be taken under Slovenian law and that the matter had already been referred to the President of the European Commission in view of further necessary legal actions; see the letter of President of the ECB: Mario Draghi, ‘Letter to State Prosecutor General of Slovenia: Seizure of ECB Information’ (European Central Bank, 6 July 2016), www.ecb.europa.eu/pub/pdf/other/160706letter_fiser.en.pdf?377e043adc876ff018dcb12f70a86377. 59 Inadmissibility on the grounds that neither Bank of Slovenia nor ECB (as public institutions) are qualified to be beneficiaries of equal protection of rights or right to judicial protection; Constitutional Court Case U-I-157/16-12, Up-729/16-15, Up-55/17-20, 19 April 2018; ECLI:SI:USRS:2018:U.I.157.16. 60 Matej Avbelj, ‘The European Central Bank in national criminal proceedings’ (2017) 4 EL Rev.

640  Matej Avbelj, Erazem Bohinc

A.  Work of the Fiscal Council of the Republic of Slovenia In September 2018 the Fiscal Council adopted a report in which it examined the measures of the new coalition agreement61 after Slovenia’s 2018 parliamentary elections.62 The conclusion of this report was that consistent implementation of the measures foreseen could result in distancing Slovenia from its medium-term fiscal objective as well as from ensuring fiscal sustainability resulting from considerable increase in the general government expenditure. Measures proposed in the coalition agreement would in the short run provide impetus to increase economic growth, but this would be at the expense of a worsened fiscal situation and other macroeconomic balances. Inter alia, the Fiscal Council also established that the coalition agreement does not adequately tackle the long-term risks to fiscal sustainability primarily linked to demographic change and the funding of social protection systems, or some of its anticipated measures even increase the risks in these areas.63 This Fiscal Council report attracted a lot of attention in the media, as this was the first time that the new coalition agreement would be assessed for sustainability and compliance with fiscal rules.64 The government’s immediate response was that the coalition agreement is not a budget document and also not necessarily a binding document. Slovenia submitted the draft budgetary plan for 2019 to the Commission pursuant to the Code of Conduct of the Stability and Growth Pact. However, since the new government took office only recently, it only included the policy measures that the government had adopted to that date, but did not include any new planned measures for 2019. The Commission expressed its understanding but invited the Slovenian authorities to submit an updated draft budgetary plan as soon as possible.65 Concerning the draft budgetary plan, the Fiscal Council in its statement of 15 October 2018 expressed the opinion that new measures should be adopted as soon as possible and should pursue guaranteeing medium-term and long-term fiscal sustainability and compliance with fiscal rules.66 On 22 October 2018 in its response to the Commission letter, Slovenia agreed to send an updated draft budgetary plan after consultations in the National Assembly and upon receiving an opinion from the Fiscal Council.67 In March 2019 the National Assembly adopted an amendment to the 2019 budget, exceeding the budget break, as estimated by the Fiscal Council, for 270 million euros. Despite the repeated warnings of the Fiscal Council that the proposed

61 ‘Koalicijski sporazum o sodelovanju v vladi Republike Slovenije za mandatno obdobje 2018–2022’ (Stranka LMŠ, August 2018) www.strankalms.si/wp-content/uploads/2018/08/Koalicijski-sporazum-o-sodelovanju-v-VladiRepublike-Slovenije-za-mandatno-obdobje-2018%E2%80%932022.pdf. 62 ‘Assessment of fiscal and macroeconomic consequences of the Coalition Agreement on Cooperation within the Government of the Republic of Slovenia in the 2018–2022 term-of-office’ (Fiscal Council, 18 September 2018), www.fs-rs.si/ assessment-of-fiscal-and-macroeconomic-consequences-of-the-coalition-agreement-on-cooperation-within-thegovernment-of-the-republic-of-slovenia-in-the-2018-2022-term-of-office/. 63 Ibid, 3. 64 Examples of news articles in the Slovenian daily media: ‘Fiskalni svet: Ukrepi koalicijske pogodbe bi poslabšali fiskalni položaj’, (Rtvslo.si, 18 September 2018), www.rtvslo.si/slovenija/fiskalni-svet-ukrepi-koalicijske-pogodbe-biposlabsali-fiskalni-polozaj/466240; ‘Fiskalni svet “raztrgal” koalicijsko pogodbo’ (Delo.si, 18 September 2018), www.delo. si/novice/slovenija/fiskalni-svet-raztrgal-koalicijsko-pogodbo-92833.html. 65 ‘Letter from the European Commission’ (European Commission, 19 October 2018), ec.europa.eu/info/sites/info/ files/economy-finance/slovenia_-_draft_budgetary_plan_for_2019.pdf. 66 ‘Statement regarding the Draft Budgetary Plan for 2018 and 2019’ (Fiscal Counsil, 15 October 2018), www.fs-rs.si/ statement-regarding-the-draft-budgetary-plan-for-2018-and-2019/. 67 ‘Slovenija odgovorila Evropski komisiji glede proračunskega načrta’ (Rtvslo.si, 22 October 2018), www.rtvslo.si/ evropska-unija/slovenija-odgovorila-evropski-komisiji-glede-proracunskega-nacrta/469625.

Slovenia  641 budget did not comply with the statutory and constitutional requirement of structural balance in the mid-term, the government and the National Assembly moved on with their political agenda, essentially ignoring the Fiscal Council. The opposition parties then challenged the amended 2019 budget before the Constitutional Court.

B.  Constitutional Law Scrutiny of EMU Reform Scenarios As described above, the Slovenian Constitution is silent on any special limits to the future EMU reform scenarios. Government’s official position regarding the Proposal for a Directive on laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States (COM (2017) 824) is that this proposal is ultra vires in relation to the Fiscal Compact.68 The reason for that position is that it also lays down provisions concerning medium-term budgetary orientation. Moreover, this directive would considerably increase complexity and negatively affect transparency of the set of rules already in force. The government’s position is also that a qualified majority of two-thirds of the representatives which would be needed to transpose the directive into the national law would be hard to achieve. Furthermore, this subject matter is already addressed by Council Directive 2011/85/EU and it is not clear what is the added benefit of the new proposal. It is also not sufficiently argued why present rules do not suffice and would have to be changed. The proposal does not clearly address and consider the specifics of each EU Member State or how a consensus on several definitions as well as calculations concerning structural balance would be reached.69 Slovenia is the last EU Member State to implement the Markets in Financial Instruments Directive (MiFID II).70 That directive is regarded as one of the cornerstones of the EU’s regulatory framework of financial markets and one of the biggest EU financial market regulatory reform measures. The law transposing the directive in Slovenia was adopted only recently after following a shortened procedure (effectively limiting the discussion in the National Assembly), entering into force on 15 December 2018 after almost a one-year delay.71 The Commission in July 2018 started an infringement procedure and referred Slovenia together with another Member State to the CJEU for failure to communicate national measures implementing EU law.72 Slovenia managed to avoid penalties by transposing MiFID II into its national legal system. However, this example shows that the Slovenian financial system tends to trail behind more advanced western EU financial systems. Slovenia generally has a positive position towards further EMU integration and decreasing structural deficit and ‘fixing the roof while the sun is shining and whilst it still is’.73 It supports the views that special attention should be given to small open economies and that attention 68 European Commission, ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’, COM (2017) 824. 69 ‘Vlada sprejela stališče do predloga direktive o krepitvi fiskalne odgovornosti držav članic’ (Ministry of Finance, 1 March 2018) www.mf.gov.si/si/medijsko_sredisce/novica/3407/. 70 Directive 2014/65/EU on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/ EU, [2014] OJ L 173/349. 71 Market in Financial Instruments Act 1, Official Gazette of the Republic of Slovenia No 77/2018; ATVP pozdravlja sprejem ZTFI-1 (Securities Market Agency of Republic of Slovenia, 3 December 2018), www.atvp.si/novica?newsID=700. 72 ‘European Commission: Implementation by EU countries’ (European Commission), ec.europa.eu/info/law/marketsfinancial-instruments-mifid-ii-directive-2014-65-eu/implementation/implementation-eu-countries_en. On 19 July 2018 the European Commission referred Slovenia to the Court of Justice of the EU for failing to transpose MiFID II; see ‘European Commission Press release’ (European Commission, 19 July 2018) europa.eu/rapid/press-release_IP-18-4530_en.pdf. 73 To paraphrase the President of the Commission Jean-Claude Juncker in his State of the Union Address 2017.

642  Matej Avbelj, Erazem Bohinc should be focused on the finalisation of the banking union project. Thus, Slovenia is generally in favour of establishing and completing the European Deposit Insurance Scheme as well as the Single Resolution Fund.74 Slovenia supports further development of the European Stability Mechanism and welcomes discussions on establishing the European Monetary Fund (EMF).75 The government’s position76 is supported by the position of the National Council77 and is that the decision-making process should be maintained and it should ensure that Member States would remain equally involved. The government considers preserving the consent of a member state to receive financial aid as especially important. Basing the regulation on Article 352 TFEU and changing the voting system are seen as some of the most critical new proposals. The current voting system should be preserved. The government proposed reconsidering its position regarding the EMF within the EU legal order so that it is analogous to the EIB. In particular, positioning the EMF as an EU agency is seen as not appropriate for an institution of such importance. Slovenia is generally cautious concerning potential new stabilisation measures and inaugurating an EU Minister of Economy and Finance.78 Similarly cautious approach has also been supported concerning proposals to change the voting procedures in the field of EU fiscal rules to qualified majority voting. Changes in voting could lead to individual Member States losing powers over public finance and its governance.79 With regard to other EMU related instruments, for example, the Reform delivery tool COM (2017)826,80 the European automatic macroeconomic stabilisation function COM (2017) 822,81 the Banking union backstop mechanisms COM (2017) 827,82 Slovenia has not yet taken any clear positions. It has only done so with respect to Regulation (EU) No 1303/2013 laying down common provisions on the European Funds, for which it adopted a general position to support the proposal. Thanks to the abstract and relatively open-ended text of Article 3a of the Slovenian Constitution, which serves as a conduit for EU law in Slovenia, it can be foreseen that further development and deepening of the EU economic union, both monetary and fiscal, will not pose significant constitutional challenges. This conclusion is reinforced by a rather deferential, indeed explicitly EU-friendly stance, of the Slovenian Constitutional Court to the EU monetary and fiscal reforms in the past. Furthermore, the weakness of the Slovenian political system and the fragmentation of the overall

74 ‘Ministrica Vraničar Ermanova na Bančni konferenci o aktivnostih za dokončanje bančne unije na ravni EU’ (Ministry of Finance, 6 June 2018) www.mf.gov.si/si/medijsko_sredisce/novica/3453/. 75 ‘Ministrica Vraničar Ermanova na zasedanje finančnih ministrov EU’ (Ministry of finance, 19 January 2018), www. mf.gov.si/si/medijsko_sredisce/novica/3378/. 76 Predlog stališča Republike Slovenije do Predloga uredbe Sveta o ustanovitvi Evropskega denarnega sklada No 54924-7/2018/3; 21 March 2018. 77 ‘Mnenje k Predlogu stališča Republike Slovenije do Predloga uredbe Sveta o ustanovitvi Evropskega denarnega sklada’ (National Council, 4 April 2018), www.ds-rs.si/sites/default/files/dokumenti/652-19mepa_2711-vii.pdf. 78 ‘Ministrica za finance na delovnem kosilu gostila podpredsednika Evropske komisije Jyrkija Katainena’ (Ministry of Finance, 12 April 2018), www.mf.gov.si/si/medijsko_sredisce/novica/3429/. 79 Minister Bertoncelj na zasedanje finančnih ministrov EU (Ministry of Finance, 7 February 2019) www.mf.gov.si/si/ medijsko_sredisce/novica/3553/. 80 European Commission, ‘Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006’, COM (2017) 826. 81 European Commission, ‘Communication on new budgetary instruments for a stable euro area within the Union framework’, COM (2017) 822. 82 European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’, COM (2017) 827.

Slovenia  643 political framework make it highly unlikely for coalitions to be built that would (1) strongly oppose reforms adopted at the EU level and (2) be ready and capable of challenging such reforms before the Constitutional Court. It is more plausible instead that Slovenia will officially support most, if not all, economic reform measures to be adopted in the future. It will also, as it has been the case in the past, formally comply with its newly incurred supranational legal commitments. However, these commitments could in practice be complied with only selectively, subject to the political interests and needs of a given opportunistic political moment.

V.  Resulting Relationship between EU Law and National Law The rather slow emergence of EU law in Slovenia could be, inter alia, ascribed also to the country’s economic isolationism stemming from the Yugoslav era, which lasted for about half a century. Unlike other Central and Eastern European (CEE) countries, Slovenia has enjoyed a very low share of a foreign direct investment. As is well known, it has been the transnational companies which have benefited most from EU law, in particular from the single market. They have been the most frequent EU law litigators. Consequently, their relative absence in Slovenia can also explain why there have been relatively fewer EU law-related cases, compared to other CEE countries. In particular, the EU banking union and capital markets union projects are of special relevance for Slovenia. Slovenia’s economic system is predominantly dependent on classic bank financing, whereas capital markets financing scores very low compared even to the EU average.83 The question of the relationship between EU law and Slovenian law ultimately continues to remain open. As we have seen above, the Constitutional Court has given an increasingly detailed guidance on the interpretation and application of the Slovenian conduit to the EU (eg, Article 3a of the Constitution). Nevertheless, it has stopped short of developing a comprehensive and definite constitutional doctrine on the relationship between EU and Slovenian law. This, therefore, has yet to take shape. In accordance with the Slovenian law-making tradition, it can be anticipated that in the process of the ultimate formation of this constitutional doctrine, an important role will also be played by the Slovenian academic community. The latter has not been uniform towards EU law so far. Three different approaches can be distinguished: the international law approach, the supranational approach and the pluralist approach.84 The proponents of the international law approach tend to assimilate EU law with general public international law. According to it, the EU remains an international organisation, albeit of a special kind.85 While this perspective has been in decline, its original strong influence can be traced in the terminology employed in Article 3a of the Constitution. That provision was drafted in 2003, but like some of the constitutions of the old Member States it does not contain any explicit reference to the EU. Instead, it speaks of international organisations to which Slovenia can transfer the exercise of a part of its sovereign rights.86

83 Eg William Wright, Panagiotis Asimakopoulos, ‘Report: Unlocking Capital Markets’ (New Financial, March 2018), newfinancial.eu/report-the-size-depth-growth-opportunity-in-eu-capital-markets/. 84 This draws directly on Matej Avbelj, Martinico, Pollicino (eds), The National Judicial Treatment of the ECHR and EU Laws, A Comparative Constitutional Perspective (Groningen, Europa Law Publishing, 2010). 85 Igor Kaučič, ‘Ali je ustava primeren document za to mednarodno organizacijo?’ (2005) Presentation at the Conference in Bovec. 86 Constitution Art 3a.

644  Matej Avbelj, Erazem Bohinc The proponents of the supranational approach espouse and defend the legal nature of European integration as construed by the CJEU in its heyday – when its primacy and direct effect jurisprudence culminated in the Simmenthal case. In this sense, they argue that it is evident that the Slovenian Constitutional Court in general accepts the autonomy, direct effect and primacy of EU law, which is a legal order sui generis, and which does not concern international law.87 EU law is, furthermore, perceived as hierarchically superior to national law and requires all domestic legal acts to be in compliance with it.88 This means that a domestic legal order incrementally subjects itself to EU law, clears the path for the latter’s prevalence and is, therefore, in a gradual retreat.89 This cannot be prevented even by the safeguards contained in Article 3a of the Constitution, which bind the EU to respect human rights, democracy and the rule of law. This is because in the opinion of one of the drafters of Article 3a, they cannot be used to refuse the application of EU legal acts, even when they would conflict with the Constitution.90 Moreover, the influence of the proponents of the supranational approach can be identified in the language used in the Slovenian translation of the primacy clause in the failed Constitutional Treaty as well as in the present declaration on the principle of primacy in the Treaty of Lisbon. While all other language versions speak of primacy of EU law, the Slovenian version proclaims the supremacy of EU law over the entire body of national laws.91 Among the academic lawyers this provision has been, on the one hand, approved as yet another confirmation of a long established fact,92 while others have been extremely critical of it.93 The third perspective is a pluralist one and recognises the special nature of the EU, its sui generis character, and the autonomy of its legal order. Simultaneously, it insists that national legal orders shall also retain their original autonomy. European integration, therefore, functions as a common pluralist whole. It is composed of 28 national and one supranational legal order. These legal orders are connected in a heterarchical rather than a hierarchical manner through the relational principle of primacy whose effectiveness depends on the two-fold conditions stemming from EU and national law.94 This perspective is only just gaining ground, but it is becoming increasingly popular especially, albeit not exclusively, among the younger generation of lawyers.95

87 Mirjam Škrk, ‘The Role of the Constitutional Court of the Republic of Slovenia Following Integration into the European Union’ (Prispevki z mednarodne konference o položaju ustavnih sodišč po vključitvi v Evropsko unijo, 2004), www.us-rs.si/o-sodiscu/konference/pcceu-bled-30-september-2-oktober-2004/presentation-by-dr-mirjam-skrkjudge-of-the-consti-3377/. 88 Albin Igličar, ‘Zakonodajna suverenost v pogojih polnopravnega članstva Slovenije v EU’ (2006) 25 Pravna praksa 9–11; Petja Toškan, ‘Evropski člen in ustavna zaščita temeljnih človekovih pravic’ (2002) 3 Pravna praksa 4. 89 Ribičič, ‘Uveljavljanje evropskih standardov v praksi slovenskega ustavnega sodišča’, 29–30. 90 Miro Cerar, ‘URS in PUE: Usklajevanje Ustave RS z Ustavo za Evropo?’ (2005) 10 Pravna praksa 6. 91 Matej Avbelj, ‘Zakaj je prevod PEU napačen?’ (2007) Pravna praksa 18; See also Matej Avbelj, ‘Supremacy or Primacy of EU Law – (Why) Does it Matter?’ (2011) 17 European Law Journal 744. 92 Cerar, ‘URS in PUE: Usklajevanje Ustave RS z Ustavo za Evropo?’, 6. 93 Avbelj ‘Zakaj je prevod PEU napačen?’, 18. 94 Matej Avbelj, ‘Theory of European Union’ (2011) 36 EL Rev 818. 95 For example, Ribičič Ciril, ‘Implementing European Standards into the Case-law of the Constitutional Court’ (2004), www.us-rs.si/o-sodiscu/konference/pcceu-bled-30-september-2-oktober-2004/presentation-by-dr-ciril-ribicic-judgeof-the-cons-3379/ at 3, who noted that ‘Hierarchy and primacy of one set of courts over another is not the right solution, at least insofar as the protection of human rights is considered. Dialogue, cooperation and synergy are necessary instead. It would be therefore wrong or at least premature to close the door for a potential intervention by the national constitutional courts when the values on the basis of which the states have entered the Union would get under threat’; also Boštjan Zalar, ‘Prve izkušnje sodišča in sodnikovi pogledi na uporabo prava Evropske unije’ (2005) 6 Pravna praksa 15.

Slovenia  645

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646  Matej Avbelj, Erazem Bohinc European Commission, ‘National Parliament opinions and Commission replies: Slovenia 2013’, www. ec.europa.eu/dgs/secretariat_general/relations/relations_other/npo/slovenia/2013_en.htm. European Commission, ‘Slovenia joins the euro area’, 2003 ec.europa.eu/economy_finance/articles/euro/ slovenia_joins_the_euro_area_en.htm. Fiscal Council of the Republic of Slovenia, ‘Assessment of fiscal and macroeconomic consequences of the Coalition Agreement on Cooperation within the Government of the Republic of Slovenia in the 2018–2022 term-of-office’ (18 September 2018), www.fs-rs.si/assessment-of-fiscal-and-macroec onomic-consequences-of-the-coalition-agreement-on-cooperation-within-the-governmentof-the-republic-of-slovenia-in-the-2018-2022-term-of-office/. Fiscal Council of the Republic of Slovenia, ‘What do we do – Fiscal Council of the Republic of Slovenia’, www.fs-rs.si/what-do-we-do /. Fiscal Rule Act, Official Gazette of the Republic of Slovenia, No 55/2015. ‘Fiskalni svet “raztrgal” koalicijsko pogodbo’ (Delo.si, 18 September 2018), www.delo.si/novice/slovenija/ fiskalni-svet-raztrgal-koalicijsko-pogodbo-92833.html. Fiskalni svet: Ukrepi koalicijske pogodbe bi poslabšali fiskalni položaj (Rtvslo.si, 18 September 2018), www. rtvslo.si/slovenija/fiskalni-svet-ukrepi-koalicijske-pogodbe-bi-poslabsali-fiskalni-polozaj/466240. A Galič, ‘“Argument of precedent” or Slovenian Constitutional Court’s Position on the Arbitrary Aberration from Case Law’ (2003) 1 Revus 44. Government of the Republic of Slovenia, ‘15 years since consensus decision on EU and NATO, in Government of the Republic of Slovenia’ (2018) www.vlada.si/en/media_room/newsletter/slovenia_weekly/news/ article/15_years_since_consensus_decision_on_eu_and_nato_61173/. I Kaučič, ‘Ali je ustava primeren document za to mednarodno organizacijo?’ (2005) Presentation at the Conference in Bovec. Koalicijski sporazum o sodelovanju v vladi Republike Slovenije za mandatno obdobje 2018–2022’ (Stranka LMŠ, August 2018), www.strankalms.si/wp-content/uploads/2018/08/Koalicijski-sporazum-o-sodelova nju-v-Vladi-Republike-Slovenije-za-mandatno-obdobje-2018%E2%80%932022.pdf. ‘Letter from the European Commission’ (European Commission, 19 October 2018), ec.europa.eu/info/sites/ info/files/economy-finance/slovenia_-_draft_budgetary_plan_for_2019.pdf. S Lucchini, J Moscianese, I de Angelis, F Di Benedetto, ‘Bank rescue in the European Union. From bail-out to bail-in’ (Kluwer Competition Law Blog, 8 August 2016), competitionlawblog.kluwercompetitionlaw. com/2016/08/08/bank-rescue-european-union-bail-bail/. A Macdowall, ‘How Slovenia turned itself around’ (Politico, 15 July 2015), www.politico.eu/article/sloveniaturns-itself-around-greece-bailout-bank-crisis/. Market in Financial Instruments Act 1, Official Gazette of the Republic of Slovenia, No 77/2018. Markets in Financial Instruments (MiFID II) – Directive 2014/65/EU; MiFID II. A Mavčič, ‘Dossier of the Constitutional Court of the Republic of Slovenia’ in A Mavčič (ed) Constitutional review systems around the world (Lake Mary, Vandeplas Publishing, 2018) 584. Ministry of Finance, ‘Minister Bertoncelj na zasedanje finančnih ministrov EU’ (7 February 2019), www. mf.gov.si/si/medijsko_sredisce/novica/3553/. Ministry of Finance, ‘Ministrica Vraničar Ermanova na Bančni konferenci o aktivnostih za dokončanje bančne unije na ravni EU’ (6 June 2018), www.mf.gov.si/si/medijsko_sredisce/novica/3453/. Ministry of Finance, ‘Ministrica Vraničar Ermanova na zasedanje finančnih ministrov EU’ (19 January 2018), www.mf.gov.si/si/medijsko_sredisce/novica/3378/. Ministry of Finance, ‘Ministrica za finance na delovnem kosilu gostila podpredsednika Evropske komisije Jyrkija Katainena’ (12 April 2018), www.mf.gov.si/si/medijsko_sredisce/novica/3429/. Ministry of Finance, ‘Vlada sprejela stališče do predloga direktive o krepitvi fiskalne odgovornosti držav članic’ (1 March 2018), www.mf.gov.si/si/medijsko_sredisce/novica/3407/. National Council, ‘Mnenje k Predlogu stališča Republike Slovenije do Predloga uredbe Sveta o ustanovitvi Evropskega denarnega sklada’, (4 April 2018), www.ds-rs.si/sites/default/files/ dokumenti/652-19mepa_2711-vii.pdf. P Nicolaides, ‘Burden-sharing and state aid to banks’ (StateAidHub.eu, 13 September 2016), stateaidhub.eu/ blogs/stateaiduncovered/post/7165. M Novak, ‘Slovenska identiteta v primežu evropskega prava’ (2004) 2 Revus 95. M Novak, Uvod v pravo (Nova Gorica, Evropska pravna fakulteta, 2010). Official Gazette of the Republic of Slovenia, No 24/2003 of 7 March 2003. Official Gazette of the Republic of Slovenia, No 34/2004 of 2 April 2004. Official Gazette of the Republic of Slovenia, No 47/2013 of 31 May 2013.

Slovenia  647 Official Gazette of the Republic of Slovenia, No 55/2015 of 24 July 2015. Predlog stališča Republike Slovenije do Predloga uredbe Sveta o ustanovitvi Evropskega denarnega sklada, No. 54924-7/2018/3; 21 March 2018. ‘Poslanci potrdili zakon o fiskalnem pravilu’ (Rtvslo.si, 10 July 2015) www.rtvslo.si/slovenija/poslancipotrdili-zakon-o-fiskalnem-pravilu/369382. C Ribičič, ‘Implementing European Standards into the Case-law of the Constitutional Court’ (2004), www. us-rs.si/o-sodiscu/konference/pcceu-bled-30-september-2-oktober-2004/presentation-by-dr-ciril-ribici c-judge-of-the-cons-3379/. C Ribičič, Uveljavljanje evropskih standardov v praksi slovenskega ustavnega sodišča (2004) 3 Revus 69. M Škrk ‘Odnos med mednarodnim pravom in notranjim pravom v praksi Ustavnega sodišča’ (2007) 62 Pravnik 280. M Škrk, ‘The Role of the Constitutional Court of the Republic of Slovenia Following Integration into the European Union’ (Prispevki z mednarodne konference o položaju ustavnih sodišč po vključitvi v Evropsko unijo, 2004), www.us-rs.si/o-sodiscu/konference/pcceu-bled-30-september- 2-oktober-2004/ presentation-by-dr-mirjam-skrk-judge-of-the-consti-3377/. M Škrk, ‘Odnos med mednarodnim pravom in notranjim pravom v praksi Ustavnega sodišča’ (2007) 62 Pravnik 280. ‘Slovenija odgovorila Evropski komisiji glede proračunskega načrta’ (Rtvslo.si, 22 October 2018) www. rtvslo.si/evropska-unija/slovenija-odgovorila-evropski-komisiji-glede-proracunskega-nacrta/469625. State Election Commission, Poročilo o izidu glasovanja in o izidu referenduma o pristopu Republike Slovenije k Evropski Uniji, ki je bil 23. Marca 2003, (2003), www.dvk-rs.si/files/files/porocilo-o-referendumuEU.pdf. Statement regarding the Draft Budgetary Plan for 2018 and 2019’ (Fiscal Counsil, 15 October 2018). www. fs-rs.si/statement-regarding-the-draft-budgetary-plan-for-2018-and-2019/. P Toškan, ‘Evropski člen in ustavna zaščita temeljnih človekovih pravic’ (2002) 3 Pravna praksa 4. ‘Vlada pošilja zakon o fiskalnem pravilu v DZ’ (Delo.si, 4 December 2014) www.delo.si/novice/politika/vlad a-potrdila-predlog-zakona-o-fiskalnem-pravilu.html. N Walker, ‘Late Sovereignty in the European Union’ in N Walker (ed), Sovereignty in Transition (Oxford, Hart Publishing, 2003) 28. W Wright, P Asimakopoulos, ‘Report: Unlocking Capital Markets’ (New Financial, March 2018), newfinancial.eu/report-the-size-depth-growth-opportunity-in-eu-capital-markets/. B Zalar, ‘Prve izkušnje sodišča in sodnikovi pogledi na uporabo prava Evropske unije’ (2005) 6 Pravna praksa 15.

648

27 Finland TUOMAS OJANEN

Abstract: Similar to other Nordic countries, Finland lacks a constitutional court, and courts still play a secondary role on the Finnish scene of constitutionalism. Instead, the main authority of constitutional interpretation and review is the Constitutional Law Committee of Parliament. The Committee has a constitutional mandate for ex ante review of the constitutionality of ­‘legislative proposals and other matters brought for its consideration, as well as on their relation to international human rights treaties’ pursuant to section 74 of the Constitution. Ex ante constitutional review by the Constitutional Law Committee includes the review of proposals for EU legislation and other EU-related measures. Hence, the Constitutional Law Committee has been able to advance constitutional observations on EMU-related proposals well before their entry into force, and in a way that these observations have occasionally shaped the further negotiations of these proposals at the EU level. For instance, the Committee initially had constitutional concerns over the draft ESM Treaty. These concerns later shaped the further supranational negotiation process of the draft ESM Treaty so that a conflict between the ESM Treaty and the Finnish Constitution was eventually eliminated. This is one of the advantages of ex ante constitutional review – it accommodates constitutional concerns in advance of international developments, the EMU reform proposals being a prime example. The Constitutional Law Committee has issued a number of opinions on various EMU-related measures, crisis management measures and EMU reform scenarios. The following distinct, yet closely intertwined constitutional considerations emerge out from the maze of these opinions to define what the Finnish constitutional position to economic and fiscal integration is basically all about. On the one hand, the Committee has systematically emphasised the appropriate involvement of parliament in the national preparation of various EMU measures, including parliament’s right to receive information on EMU affairs, in accordance with sections 96 and 97 of the Finnish Constitution for the purpose of securing democracy and the protection of parliamentary prerogatives. On the other hand, the Committee has focused on the implications of EMU measures on parliament’s budgetary prerogatives and the sovereignty of Finland in general. When assessing the budgetary effects of various EMU measures, the Committee‘s ultimate constitutional concern has been that financial commitments pertaining to EMU integration do not jeopardise the effective observance of such constitutional obligations as those stemming from social rights and the Finnish welfare state system in general. In addition, the Constitutional Law Committee has emphasised that the reform of EMU integration should primarily take place in accordance with the founding treaties of the EU and within the framework of the legal and institutional system of the EU. From this constitutional stance, the Committee levelled criticism against the adoption of such EMU-related measures outside the EU legal framework as the ESM Treaty, which was established by an intergovernmental treaty.

650  Tuomas Ojanen Despite occasional ex ante constitutional concerns expressed by the Constitutional Law Committee over the years on various EMU-related proposals, Finland has so far been able to adopt and implement all EMU-related measures without major (or at least insurmountable) constitutional problems. Key words: Constitutional Law Committee of Parliament, ex ante constitutional review of EMU proposals, absence of ex post judicial review, participation of parliament in the national preparation of EMU reform proposals, parliament’s right to receive information on EMU reform proposals, budgetary sovereignty and budgetary prerogatives of parliament, the adequate observance of constitutional obligations, constitutional criticism of EMU reform proposals outside the EU legal and institutional framework.

I.  Main Characteristics of the Finnish Constitutional System The Constitution of Finland (Act No 731/1999)1 entered into force on 1 March 2000, replacing the earlier Constitution Act of 1919 and three other enactments enjoying constitutional status.2 In comparison with other European Constitutions, Finland’s 2000 Constitution stands out as a modern and unified document with a clear structure and concise and lucid style of writing.3 The first chapter, entitled ‘Fundamental Provisions’, defines the foundations of the constitutional-political system of Finland as a republican parliamentary democracy based on the rule of law, the principle of parliamentarism, the separation of powers, and the protection of fundamental and human rights. Up until 2012, the Constitution of Finland suffered from a ‘European deficit’, as EU membership was insufficiently reflected in the text of the Constitution despite its constitutional significance. After the amendment of the Constitution in 2012, however, the very first provision of the Constitution displays constitutional engagement with EU membership by providing that Finland ‘is a Member State of the European Union’. In addition, constitutional provisions acknowledging the possibility of the transfer of powers to the EU or international organisations were enacted (sections 94 and 95 of the Constitution). The domestic decision-making system pertaining to EU affairs is regulated in more detail in Chapter 8 of the Constitution. One of the most distinctive features of the Constitution, including Finnish legal culture, in recent years has been the tendency towards rights-based constitutionalism.4 The very first provision of the Constitution expresses commitment to rights-based constitutionalism by providing that the Constitution ‘shall guarantee the inviolability of human dignity and the freedom and rights of the individual and promote justice in society’. The same provision adds that Finland participates in international cooperation ‘for the protection of peace and human rights and for the development of society’. Fundamental rights are enshrined in Chapter 2 that amounts to a 1 Unofficial translation of the Constitution of Finland, including amendments up to 1112/2011, in English is available at www.finlex.fi/fi/laki/kaannokset/1999/en19990731.pdf. Translations will be used from this source. 2 The four constitutional enactments enjoying constitutional status were as follows: the Constitution Act of Finland, the Parliament Act and two Acts on ministerial liability. All Acts were passed during the first years of independence (the Acts of 94/1919; 7/1928; 274/1922; and 273/1922). 3 For the major characteristics of the Nordic constitutions, see Helle Krunke, Björg Thorarensen (eds), The Nordic Constitutions: A Comparative and Contextual Study (Oxford, Hart Publishing, 2018). 4 See especially Juha Lavapuro, Tuomas Ojanen, Martin Scheinin, ‘Rights-based constitutionalism in Finland and the development of pluralist constitutional review’ (2011) 9 International Journal of Constitutional Law, 505. See also Tuomas Ojanen, ‘The Europeanization of Finnish Law’ in Luif P (ed), Österreich, Schweden, Finland – Zehn Jahre Mitgliedschaft in der Europäischen Union (Vienna, Böhlau Verlag 2007) 156–58.

Finland  651 broad catalogue of fundamental rights, with a range of economic, social and cultural rights, in addition to the more traditional civil and political rights. There are also specific provisions on responsibility for the environment and environmental rights, as well as for the right of access to information and the right to good administration. Fundamental rights are almost invariably granted to everyone within Finland’s jurisdiction, save certain dimensions of the freedom of movement and electoral rights that are something for Finnish citizens only. The current domestic system for the protection of fundamental and human rights intertwines another contemporary characteristic of the Finnish constitutional system: the existence of a pluralist system of constitutional review combining abstract ex ante review5 by the Constitutional Law Committee of parliament and ex post review by courts.6 Similar to other Nordic countries, Finland lacks a constitutional court, and courts still play a limited role on the Nordic scene of constitutionalism. In the Finnish model of constitutional review, the ex ante constitutional review by the Constitutional Law Committee is supposed to remain primary, whereas judicial review under section 106 of the Constitution7 is designed to plug loopholes left in the abstract ex ante review of the constitutionality of government bills, inasmuch as unforeseen constitutional problems would arise in applying the law by the courts in particular cases. Hence, the interpretive practice of the Constitutional Law Committee will be of great significance in this chapter. The constitutional position of the Constitutional Law Committee bears many resemblances to centralised judicial review models with constitutional courts at their apex. However, the main difference is that the Committee is a political organ composed of members of parliament, albeit with a distinct constitutional mandate for ex ante review of the constitutionality of ‘legislative proposals and other matters brought for its consideration, as well as on their relation to international human rights treaties’ under section 74 of the Constitution. Despite its political composition, the practice of Committee is characterised by legal argumentation and a search for constitutional interpretations that can be linked to the text of the Constitution and its preparatory works, to the Committee’s own previous interpretive practice and case law of the European courts and treaty bodies of international human rights treaties. Before issuing its Opinions, the Committee regularly hears experts in constitutional law and international human rights law, notably university professors, whose views often have significant impact on the Committee’s statements on the constitutionality of legislative proposals and other matters. For the purposes of displaying constitutional limits to economic and fiscal integration, it deserves emphasis that ex ante review by the Committee of the constitutionality of matters pending before parliament extends to cover proposals for directives, regulations or other EU measures. This is unique by European comparison as the constitutional review of EU measures usually assumes the nature of ex post review by constitutional courts or other courts in other EU

5 The supervision by the Constitutional Law Committee is abstract, not concrete, in the sense that the relation between the norm and the circumstances of a particular case is lacking, unlike in the case of concrete ex post (judicial) review where a court reviews the constitutionality of legislation in the light of all relevant circumstances of a concrete case to be decided. 6 See Lavapuro, Ojanen, Scheinin ‘Rights-based’, 510–18. 7 Section 106, entitled “the Primacy of the Constitution”, provides as follows: ‘If in a matter being tried by a court, the application of an Act of parliament would be in manifest conflict with the Constitution, the court of law shall give primacy to the provision in the Constitution’. The criterion of a ‘manifest conflict’ is deliberately designed to subordinate judicial review to ex ante review by the Constitutional Law Committee. The travaux préparatoires of section 106 explicitly state that, as a rule, a court should not regard the conflict as manifest, if the Constitutional Law Committee, in its ex ante review, has already reviewed the constitutional issue at hand and held that relevant Act of parliament should be regarded to be in harmony with the Constitution. See Government Bill for the new Constitution No 1/1998, p. 164. See also the Report by the Constitutional Law Committee on Government proposal 1/1998. See also Report 10/1998 of the Constitutional Law Committee, at p. 31. See also Lavapuro, Ojanen, Scheinin, ‘Rights-based’, 517–18.

652  Tuomas Ojanen Member States. The possibility of ex ante constitutional review of proposals for EU measures also explains why the Constitutional Law Committee was already able to state constitutional concerns about the proposal for the ESM Treaty whereas the German Federal Constitutional Court, for instance, reviewed the ESM Treaty ex post after its entry into force.8 Finally, a distinct characteristic of the Finnish constitutional-political system is the distribution of powers between parliament, the government and the president of the republic. Up until the early 1990s, Finland still fell into the category of presidential democracies where the elected head of state – the president of the republic – enjoyed strong powers distinct from ­parliamentary decision-making and the requirement of parliamentary confidence. The most significant bastion of presidential power was in the area of foreign policy, but the president also enjoyed strong powers in domestic affairs such as legislation, the formation of the government and the a­ ppointment of state officials. However, the trend has increasingly been away from the presidential focus of authority, towards the parliament-government axis since the early 1980s. In practice, the emphasis on the parliamentary aspect of the Finnish constitutional-political system strengthened the parliament vis-à-vis the government, on the one hand, and the strengthening of the government vis-à-vis the president of the republic, on the other hand. The current Constitution of Finland has carried the parliamentary ethos of the Constitution almost to completion by entailing a general restriction of the powers of the president and by affiliating the exercise of the remaining presidential powers to cooperation with the government. Hence, the functioning of Finland’s constitutional and political system can no longer be defined with reference to the constitutional authority and political power of the president. Instead, it is the parliamentary mode of policy-making that matters at least predominantly, if not exclusively. The prime minister is nowadays the most significant political actor in Finnish everyday politics, and the leadership of the prime minister is nowadays explicitly recognised in section 66 of the Constitution.9

A.  Constitutional Culture The Constitution, as a legal and a political instrument, has traditionally been highly esteemed in Finland. Respect for the Constitution originates in the legal-positivist resistance by the Finnish legal and political elite to the campaigns of so-called ‘Russification’ between 1899 and 1905. For over a century, from 1809 to 1917, Finland was an autonomous Grand Duchy within the Russian Empire, so that Finland had its own legal system, including constitutional enactments inherited from the era of Swedish rule before 1809. During the years of ‘Russification’, however, the Finns fought against arbitrary Russian interferences with Finland’s domestic legal and ­political affairs by advancing a constitutional challenge, essentially founded on a simple, yet firm claim that all authorities, including those of the Russian Empire, had to strictly observe Finland’s constitutional enactments and Finnish law in general in the exercise of all their powers. As this constitutional challenge proved successful, the strong tradition of legalism, including respect for the rule of law, started characterising Finnish legal culture from those years onwards.10

8 See eg Opinions 27/2011 and 1/2012 by the Constitutional Law Committee. The judgment by the German Federal Constitutional Court on the constitutionality of the ESM Treaty was given almost a year later, See judgment of 12.9.2012, 2 Bv 1390/12. 9 For a brief overview of the history of the distribution of powers between state organs, see Ojanen, ‘Europeanization’, 161–63. 10 See in more detail Ojanen, ‘Europeanization’, 146–48.

Finland  653 The Grand Duchy era also generated another constitutional idiosyncrasy, the institution of exceptive enactments. While the Finns urged, in the name of the legal positivist spirit originating in the rule of law, the Russians to abide by constitutional enactments originating in the period of the Swedish rule, there were simultaneously increasingly pressing economic and social reasons to enact such modern legislation which was at odds with the antiquated Swedish constitutional enactments. As the Finns wanted their constitutional challenge towards ‘Russification’ to remain credible, the institution of exceptive enactments offered a way out. In essence, this institution makes it possible to adopt legislation that conflicts with the Constitution without amending the text thereof, subject to the proviso, however, that such legislation is approved in accordance with the procedure for constitutional enactments. As will be discussed in more detail later, the institution of exceptive enactment has been used for the purpose of bringing into force of those obligations originating in EU membership that have been deemed to be in conflict with the Constitution. Similar to other Nordic countries, rights and judiciaries traditionally assumed marginal legal roles in the Finnish scene of constitutionalism until the late 1980s. The Finnish constitutional system followed both formally and practically the classic legislative supremacy principles with ideas about democracy as majority rule and about the law as a supreme expression of the people’s will at their apex. However, Finnish constitutionalism has witnessed a shift from the legislative sovereignty paradigm to one in which legislative acts are increasingly subordinated to rights-based system of pluralist review where both the democratically elected legislature through ex ante review by the Constitutional Law Committee of Parliament, and the independent judiciary ex post are entrusted with a duty to protect fundamental and human rights.11 Finally, it is important to note that Finland has traditionally been fairly homogeneous and state-centred in its self-understanding about community values. Aside from its civil war in 1918, there has been a lack of significant ethnic, cultural, political or religious controversies that threatened to divide society. ‘Consensual pathos’ has characterised Finnish political and constitutional culture in recent decades, thereby contributing to ‘consensual constitutional reforms’. For instance, parliament adopted the Constitution of 2000 practically unanimously. However, the most recent constitutional amendment of 2012 was an exception, as no less than 40 members of parliament voted against the amendment and another 40 MPs were absent. These numbers are high, as the unicameral parliament has only 200 MPs. Such a wide resistance stemmed primarily from those parts of the amendment addressing the ‘European deficit’ of the Constitution. In recent years, issues revolving around European integration in general and the euro crisis in particular have moved to the centre of the Finnish political arena in a manner that increasingly has caused friction between political parties and different groups of society. In particular, recent years have witnessed a breakthrough of right-wing populism that can be characterised by such attributes as ‘anti-European’, ‘anti-immigration’ and ‘nationalistic’. These kinds of ‘anti-EU integration’ political trends are not constitutionally insignificant, because the Constitution of Finland nowadays explicitly reflects a commitment to EU membership from the very outset by providing that Finland is a Member State of the European Union’ (section 1, paragraph 3 of the Constitution of Finland).

11 For the role of rights and courts in the Finnish scene of constitutionalism, see Lavapuro, Ojanen, Scheinin ‘Rights-based’.

654  Tuomas Ojanen

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments A.  EU Membership Finland joined the European Union on 1 January 1995, along with Austria and Sweden. On 1 January 1999, Finland joined the eurozone. In the mid-1990s, the Constitution was still very introverted and nationalist. The sovereignty of Finland was understood in a very formal and rigid manner, so that the transfer of powers to international organisations was almost ‘automatically’ found to be in conflict with the Constitution. In essence, the institution of exceptive enactments allowed such strict interpretation of sovereignty, as it enabled the approval of the incorporation enactments of international treaties that conflicted with the Constitution, by a vote in parliament with a qualified majority of two-thirds, without formally amending the Constitution. The institution of exceptive enactments was applied to the bringing into force of the Treaty of Accession of 1994.12 The Treaty was deemed to be in conflict with the Constitution in several ways, the major reason simply being that the transfer of powers to the EU was incompatible with the sovereignty of Finland. Accordingly, the Treaty of Accession was incorporated into Finnish law through an exceptive enactment (Act No 1540 of 1994), which was approved by a two-thirds majority in parliament. In addition, parliament accepted the ratification of the Accession Treaty by a simple majority decision. The domestic ratification and incorporation of the Accession Treaty was accompanied by a consultative referendum on 16 October 1994. The referendum was not a constitutional condition for accession, but aimed at enhancing the domestic democratic legitimacy of EU membership. In the referendum, a majority of 56.9 per cent of those who voted answered ‘yes’ to the following question: ‘Should Finland become a member of the European Union in accordance with the treaty which has been ­negotiated?’ The turnout was 74 per cent. In addition, a constitutional amendment was found necessary insofar as the domestic distribution of powers between the government and the president, including the role of parliament in EU affairs, was concerned.13 The accession of Finland to the European Economic Area (EEA) in 1994 had already made it necessary to reconsider the domestic distribution of powers between state organs. Although the powers of the president had been subject to significant reductions in domestic affairs before, the president still enjoyed strong powers in the sphere of foreign affairs in the early 1990s. Hence, one of the most important issues to be decided in Finland prior to embarking on the process of European integration was whether European affairs – first EEA affairs and later EU affairs – should be considered a domestic or a foreign policy matter. In the latter case, they would have fallen within the competence of the president by virtue of section 33 of the Constitution Act of 1919. This would have implied that the constitutional pendulum would have lurched back again towards a strong presidency, thereby watering down constitutional amendments since the early 1980s to nudge the Finnish constitutional system towards parliamentarism.

12 The instrument concerning the accession of Finland to the European Union is the Treaty between Member States of the European Union and the Kingdom of Norway, the Republic of Austria, the Republic of Finland and the Kingdom of Sweden [1994] OJ C241/14, as adjusted by Council Decision 95/1/EC, Euratom, ECSC [1995] OJ L1/1. See also Opinion 14/1994 by the Constitutional Law Committee on the Accession Treaty. 13 See Ojanen, ‘Europeanization’, 155, 157.

Finland  655 In particular, this outcome would have been a severe blow to the effective participation of ­parliament in domestic decision-making pertaining to European affairs. Hence, the competences pertaining to EU membership were arranged in the same way as in domestic legislative matters. Accordingly, the main responsibility for the national preparation of EEA affairs and later EU affairs was given to the government, whose members are both individually and collectively accountable to parliament. Moreover, specific constitutional provisions were enacted for the purpose of ensuring the effective participation of parliament in the national ­preparation of EU affairs (section 96), on the one hand, and parliament’s right to receive ­information on all measures on which decisions are to be made in the EU whenever these fall within parliament’s competence, on the other hand (section 97).

B.  The Constitution of Finland of 2000 The entry into force of the Constitution of Finland on 1 March 2000 modified the constitutional foundations of Finland’s EU membership, including EMU membership, by introducing the so-called ‘internationalisation principle’ according to which ‘Finland participates in international cooperation for the protection of peace and human rights and for the development of society’ (section 1, subsection 3). According to the travaux preparatoires of the Constitution, this new clause reflects the positive attitude of the Constitution towards international cooperation, including European integration, as well as to direct that the sovereignty clause of the Constitution must, under the current circumstances, be understood in relation to international obligations binding on Finland and, particularly, EU membership. Since 2000 onwards, the Constitutional Law Committee of Parliament has consistently referred to this new constitutional provision in reviewing both EU measures, including those pertaining to the EMU, and international treaties for their compatibility with maintaining the sovereignty of Finland. Moreover, the Committee has invariably regarded the EU as being sui generis and, accordingly, something quite different from international and regional organisations.14 In practice, this idea of the sui generis nature of the EU has resulted in a greater constitutional tolerance of limitations on sovereignty stemming from EU membership than those originating in international obligations. In addition, EU membership started increasingly shaping the interpretation of other constitutional provisions beyond the sovereignty clause of the Constitution.15 However, while the Constitution of Finland of 2000 allowed the adaption of an ‘EU-oriented interpretation approach’ of the Constitution, the Constitution still suffered from the ‘European deficit’ as the text of the Constitution itself failed to display appropriately the constitutional significance of EU membership. As the constitutional foundations of EU membership were premised on the basis of the institution of exceptive enactments, membership still appeared as an outsider of the constitutional system of Finland.

14 See eg Opinions 13/2009, 36/2006, 9/2006, 38/2001 by the Constitutional Law Committee. 15 For instance, the Nice Treaty, amending the founding treaties of the EU and the EC, was not deemed to be in conflict with the sovereignty of Finland by the Constitutional Law Committee. Accordingly, there was no need to take advantage of the institution of exceptive enactment for the purpose of bringing the Nice Treaty into force domestically. See Opinion 38/2001 by the Constitutional Law Committee. For the evolution of the sovereignty doctrine, see especially Anu Mutanen, ‘Towards a Pluralistic Constitutional Understanding of State Sovereignty in the European Union? – The Concept, Regulation and Constitutional Practice of Sovereignty in Finland and Certain Other EU Member States’ (Helsinki, University of Helsinki, 2015).

656  Tuomas Ojanen

C.  The Constitutional Amendment of 2012 Things eventually changed in 2012 when the latest amendment of the Constitution entered into force with provisions explicitly designed to address the ‘European deficit’ of the Constitution. To begin with, section 1, subsection 3 of the Constitution, located in Chapter 1 entitled ‘Fundamental provisions of the Constitution’, was amended to include an explicit commitment to EU membership by providing simply, yet forcefully, that ‘Finland is a Member State of the European Union’. Moreover, new provisions on the transfer of powers were inserted in section 94, entitled ‘Acceptance of international obligations and their denouncement’ and section 95, entitled ‘Bringing into force of international obligations’. In essence, these new provisions provide that a ‘significant’ transfer of state powers to the EU or an international organisation or an international body requires the decision made by at least two thirds of the votes cast in parliament. By contrast, the transfer of powers that cannot be deemed to be ‘of significance with regard to Finland’s sovereignty’ can be approved by a decision made by simple majority in parliament. As a result, there is no longer any meaningful scope of application for the institution of exceptive enactment as regards the transfer of powers to the EU. Instead, the crucial constitutional question simply is whether a given transfer of powers can be regarded as being ‘of significance’ within the meaning of the Constitution. It deserves to be emphasised that the text of the Constitution remains silent on such powers that cannot be transferred to the EU or international organisations. The foregoing considerations are applicable to EMU membership which is regarded as one major instance of Finland’s EU membership. In addition, the constitutional amendment of 2012 enhanced the identity of the individuals as ‘EU citizens’ by supplementing constitutional provision on electoral and participatory rights so that ‘every Finnish citizen and every other citizen of the European Union resident in Finland, having attained eighteen years of age, has the right to vote in the European Parliamentary elections, as provided by an Act’. This amendment reflects the Constitutional Law Committee approach about the Union as a community of not only the Member States but also the citizens.16 The importance of these latest constitutional amendments cannot be overemphasised insofar as constitutional foundations of EU membership, including EMU membership, are concerned: the application of the institution of exceptive enactment originally entailed the exclusion of EU membership from the Finnish constitutional system, reflecting the EU as being in contradiction with the Constitution. After the amendment of 2012, however, the Constitution of Finland displays explicit constitutional commitment to EU membership among the foundations of the Finnish constitutional system. As a result, EU membership, including EMU membership, has evolved from being a constitutional outsider to being an insider, with a firm place among the foundations of the Constitution.

D.  EMU Membership The EMU received little, if any, attention when Finland negotiated its EU membership in the early 1990s. For Finland, EU membership was largely, if not exclusively, about principles, instead of money. The Finnish political establishment, as well as a clear majority of the Finns, regarded EU membership as an anchor to western Europe in the post-cold war era. In addition, EU



16 See

eg Opinions 36/2007 by the Constitutional Law Committee.

Finland  657 membership was regarded as marking economic stability, since there was a recession in Finland in the early 1990s. Hence, one of the reasons propelling EU and EMU membership was the desire to influence economic conditions in the country. Basically, the thinking was that sustaining stable monetary conditions in a small nation such as Finland, with its very export-dependent economy, is much easier within a Europe-wide economic area rather than remaining on the outside. When the time came to proceed to the third stage of the EMU, the move itself and the need to fulfil the membership criteria of the EMU no longer provided any major constitutional or ­political difficulties. It is important to note that Finland did not seek an opt-out from the third stage of the EMU in its accession negotiations to the EU. Instead, the government that formed after the parliamentary elections in March 1995 set its target of preparing Finland to join the third stage among the first group of EU Member States. Moreover, the entry to the third state was smoothed by the rapid recovery of the Finnish economy after the recession of the early 1990s due to such factors as growth in consumer confidence, the access of Finnish exports to the wider EU market, and the success of Finnish high-tech industries, with the boom of Nokia at its apex. Given also a revision of the legislation governing the Bank of Finland for the purpose of complying with the European Central Bank system in the late 1990s, Finland could with relative ease enter the third stage of the EMU. As such, EMU was regarded as conflicting with the Constitution and, accordingly, required the use of the exceptive enactment. However, as the Accession Treaty did not include any opt-out clause regarding EMU, the prevailing constitutional view was that Finland had already accepted EMU, including its third stage, through the ratification and incorporation of the Accession Treaty in 1994. However, the Constitutional Law Committee also took the view that Finnish entry into the third stage of EMU necessitated a decision by parliament approving the move.17 As there was a strong political will among the major political parties to join the third stage among the first wave of Member States, parliament decided on Finnish participation by simple majority decision, based on a government statement (1/1998), with 135 MPs voting in favour and 61 against. Constitutional discussion and debate about EMU remained limited in the late 1990s and early 2000s. Indeed, it was not until the emergence of ‘anti-integration’ political movements and the euro crisis of the late 2000s that EU/EMU membership of Finland became a topic of day-to-day politics.

E.  Treaty Amendments All amendments of the EU founding Treaties (the Amsterdam Treaty and the Lisbon Treaty) except for the Nice Treaty have been found to conflict with the Constitution. Accordingly, the institution of exceptive enactments has been used to bring into force these Treaty amendments. However, it is important to emphasise that the institution of exceptive enactments has lost its significance since the constitutional amendment of 2012. Nowadays the essential constitutional question is whether a given transfer of powers can be regarded as being ‘of significance’ within the meaning of sections 94 and 95 of the Constitution. Even if the transfer of power is considered significant and, accordingly, a bill for the bringing into force of the treaty in

17 Opinion 14/1994 by the Constitutional Law Committee. See also Opinion 18/1997 by the Constitutional Law Committee, reiterating the view that a decision by parliament is necessary for the entry of Finland into the third stage of EMU.

658  Tuomas Ojanen question is adopted by Parliament by a decision supported by at least two thirds of the votes cast (see section 95, paragraph 2), the domestic Act of incorporation would no longer feature as an exceptive ­enactment (see in more detail above the constitutional amendment of 2012).

F.  Role of the Jurisprudence of Constitutional Actors As noted, Finland lacks a constitutional court, and the judiciary still plays a secondary role in constitutional review. Hence, the role of the judiciary has been insignificant in the formation of government’s preferences with regard to economic and fiscal integration. In practice, constitutional challenges of EMU-related measures through the courts would be doomed to failure in Finland. For instance, the annual budget does not take the form of an Act of parliament, and there is no effective judicial review of Finland’s annual budget once the budget is adopted by parliament. Hence, the question is whether the Finnish budgetary process can be regarded as being in harmony with the Treaty on Stability, Coordination and Governance in Economic and Monetary Union (TSCG, Fiscal Compact), requiring, among others, compliance with the criterion of being of ‘binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes’. However, given that the budgetary process must observe the domestic implementing enactment of the TSCG, the ‘Fiscal Policy Act’, including the robust monitoring mechanism set up in that Act in accordance with the TSCG, and that the Chancellor of Justice18 can ex ante review the legality of such government proposals by way of which the annual state budget is given to parliament, the European Commission regarded the Finnish law as complying with the TSCG.19 Instead of judicial review, the Constitutional Law Committee of Parliament has played a very significant role in the formation of government’s preferences regarding economic and fiscal integration in the context of its ex ante review of various EMU-related measures, crisis management measures and EMU reform scenarios, including various EMU-related measures outside the institutional and legal framework of the EU. In particular, such measures adopted to tackle the euro crisis as the European Stability Mechanism (ESM treaty), the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG)20 and the Stability and Growth Pact have been widely and repeatedly discussed in parliament, including in the Constitutional Law Committee. It deserves emphasis that this ex ante engagement by the Constitutional Law Committee has often been continuous. For instance, the Committee dealt four times with different versions of the ESM Treaty.21 This is one of the benefits of ex-ante constitutional review – it allows for the possibility of the Constitutional Law Committee to not only react but also to try to influence (further) developments of EMU-related measures at the EU level. 18 The Chancellor of Justice oversees the lawfulness of the official acts of the government and the president of the republic. The Chancellor of Justice also ensures that the courts of law, the other authorities and the civil servants, public employees and other persons, when the latter are performing a public task, obey the law and fulfil their obligations. In the performance of his or her duties, the Chancellor of Justice monitors the implementation of basic rights and liberties and human rights. See in more detail section 108 of the Constitution on the mandate of the Chancellor of Justice. 19 See European Commission, country annex Finland to the Report from the Commission presented under Article 8 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. Brussels, 22.2.2017, C(2017) 1201 final. 20 The Act on implementation of the TSCG and the budgetary framework directive No 869/2012 is Act No 869/2012) (‘Fiscal Policy Act’) with its subsequent amendments as introduced by the Act No 18/2017. 21 See Opinions 1/2011, 22/2011 and 13/2012 by the Constitutional Law Committee and Protocol 11/2011 by the Constitutional Law Committee.

Finland  659 Three major trends emerge out of the maze of ex ante review of EMU-related measures by the Constitutional Law Committee. For the sake of clarity, it needs to be mentioned that the above views by the Constitutional Law Committee also apply to intergovernmental treaties outside the EU legal order such as the TSCG and TESM Treaties in addition to such EU measures as the EU Six Pack legislation. This is notwithstanding the fact that the Committee has criticised the adoption of such ad hoc intergovernmental treaties and, instead, has emphasised the need for developing the EMU within the EU’s institutional and legal framework. First of all, the Constitutional Law Committee has consistently taken the view that all EMU-related measures and crisis management measures, including those adopted outside the EU legal order, feature as ‘EU affairs’ that fall within the scope of application of section 96 and/or 97 of the Constitution, provided that there exists a sufficient ‘EU or EMU linkage’. For instance, despite the TSCG being formally a treaty under international law, the Constitutional Law Committee emphasised that this Treaty nonetheless has very firm and strong linkage with the EMU and the EU legal order.22 The outcome of such views by the Committee has been that parliament enjoyed very strong constitutional prerogatives of participation, including a right to be informed on matters being negotiated at the supranational level, as well as the right to demand modifications to various draft instruments. In practice, ex ante constitutional review by the Committee has revolved around constitutional concerns of ‘EMU-related measures’ such as those relating to national sovereignty, the financial and budgetary competence of parliament and the democratic legitimacy of the exercise of financial powers, including the right of parliament to receive information and participate effectively in the national preparation of all EU measures and EMU measures falling within the competence of parliament. Within this context, the following two constitutional concerns are particularly worthy of elaboration. On the one hand, the Constitutional Law Committee has scrutinised various instruments related to the euro crisis for their impact on the budgetary powers of parliament. In particular, the Committee has been concerned that the absolute amount of Finland’s liabilities under the ESM Treaty or other instruments pertaining to the euro crisis would not endanger, in light of the annual national budget, the possibilities of Finland meeting its obligations under the Constitution. The Committee has so far invariably concluded that Finland’s liabilities have neither conflicted with the budgetary powers of parliament, nor endangered the possibilities of Finland observing its constitutional obligations. Nevertheless, these considerations set out constitutional limits to EMU related measures and crisis management measures and direct and shape constitutional scrutiny of EMU reform scenarios.23 On the other hand, the Constitutional Law Committee has consistently emphasised in the context of various measures pertaining to the euro crisis the need to observe the strong constitutional prerogatives of parliament as regards its rights of information and participation in EU affairs-related domestic decision-making in accordance with sections 96 and 97 of the Constitution.24 In practice, this has ensured the continuous involvement of the Finnish parliament and its subcommittees, including the Constitutional Law Committee itself, throughout the euro crisis via the Finnish constitutional framework.

22 Opinion 24/11 by the Constitutional Law Committee. 23 See Opinion 13/2012 by the Constitutional Law Committee. For an overview of the Committee’s practice regarding various measures pertaining to euro crisis, see Paivi Leino and Janne Salminen, ‘Constitutional Change Through Euro Crisis Law: Finland. A country report on the impact of crisis Instruments on the legal structures of the EU Member States commissioned by the European University Institute’ published on 20 May 2014. 24 See eg Opinion 13/2012 by the Constitutional Law Committee.

660  Tuomas Ojanen

G.  The National Preparation of Proposals for EU Legislation and EMU Related Instruments, Including the Participation of Parliament As already noted, the Finnish Constitution secures a strong role for parliament in the domestic preparation of EU affairs, including EMU-related matters. It is also important to emphasise in general that the domestic distribution of powers regarding EU affairs, including matters outside the EU legal order but with a sufficient EU linkage, revolves around the government-parliament axis. The general competence in EU matters belongs to the government, whose members are individually and collectively accountable to parliament. It deserves further emphasis that nothing has been ruled out of the government’s competence and, accordingly, the government is competent also in matters falling within the EU’s Common Foreign and Security Policy. The competence of the government is regulated by section 93, subsection 2, of the Constitution as follows: The Government is responsible for the national preparation of the decisions to be made in the European Union, and decides on the concomitant Finnish measures, unless the decision requires the approval of the Parliament. The Parliament participates in the national preparation of decisions to be made in the European Union, as provided in this Constitution.

Within the government, the daily responsibility for the preparation, monitoring and determination of Finland’s positions in EU affairs rests with the relevant ministries. In addition, a specific system of coordination exists for the purpose of securing coherence of the domestic preparation of EU affairs within the government, including the ability of Finland to present a sufficiently clear and concise position in line with Finland’s general EU policy on issues under consideration in the EU. The coordination system involves competent ministries, the Cabinet Committee on European Union Affairs, the Committee for EU affairs and its EU sub-committees. The government secretariat for EU affairs serves as the secretariat for the Cabinet Committee on European Union Affairs and the Committee for EU affairs. The rationale behind the structure and functioning of the coordination system is that the greater the political, economic or legal significance of the EU affair in question, the higher the level of handling of that affair. This domestic decision-making system is supplemented with the Finnish Permanent Representation in Brussels. It plays a pivotal role in the relationship between the EU institutions and the domestic preparation of EU affairs in Finland. It also maintains essential contacts with the Permanent Representations of the other Member States, as well as keeping in touch with officials at all levels in the EU institutions, in particular the Commission. The Finnish Permanent Representative is also the member of the Committee of Permanent Representatives (COREPER). Distinct constitutional provisions are designed to secure the participation of parliament in the consideration of EU acts and measures that would otherwise fall within areas of parliamentary competence (section 96 of the Constitution) and right to receive information (section 97 of the Constitution). The government informs parliament on EU issues through communications, reports, statements and announcements. In parliament, the Grand Committee25 assumes main responsibility of the handling of EU matters whereas special committees, including the Constitutional Law Committee, may submit opinions to the Grand Committee. Indeed, it warrants emphasis that it is wholly possible to

25 However, matters relating to the EU’s Common Foreign and Security Policy are handled at the Foreign Affairs Committee.

Finland  661 request the Constitutional Law Committee’s opinion on the compatibility of proposals for EU legislation and other EU matters with the Constitution and international human rights treaties binding on Finland. The outcome of this is ex ante constitutional review of proposals for EU measures is quite unique in European comparison and also explains why in recent years Finland has often been the first EU Member State to express constitutional doubts about various EU or EMU measures. Since almost all measures are considered ex ante by parliament, including for their constitutionality by the Constitutional Law Committee, the approval or implementation stage no longer raises significant problems. In addition, in the context of the ESM, some of its prospective decisions have been considered so significant that parliament has to be informed before any decisions are taken. Overall, the system for national preparation of EU affairs, including the participation of parliament, has functioned efficiently in a manner that has also been satisfactory for parliament. The formally structured constitutional basis of the domestic system for the preparation of EU affairs has brought about stability and transparency to the handling of EU and EMU-related affairs in Finland, while also proving to be flexible. Above all, the system has succeeded in ensuring the parliamentary focus of authority, including the effective participation of parliament, in the national preparation of EU matters and EMU-related affairs. It has also provided a possibility for Finland to present a sufficiently coordinated position, in line with its overall EU policy, on issues under consideration in the EU at various stages of preparation. The scope of application of sections 96 and 97 of the Constitution extends to all EMU-related measures, from proposals for EU Treaty amendments and EU legislation to such measures ‘outside the EU legal order’ as the EFSM, the ESM, and the TSCG. This has secured strong rights of participation for parliament. Hence, parliament, including its various committees with the Grand Committee at their apex, has enjoyed wide constitutional prerogatives to be informed during negotiations and to require modifications to the proposed instruments in order to guarantee their constitutionality.

III.  Constitutional Obstacles to EMU Integration, Including Crisis Management Measures and EMU Reform Scenarios The Constitutional Law Committee has issued a number of opinions on various EMU-related measures, crisis management measures and EMU reform scenarios. The following constitutional observations regarding various EMU-related measures emerge from the maze of all opinions.

A.  European Financial Stability Facility (EFSF) The first Greek rescue package was deliberated in parliament merely in the context of an amendment to the budget. Neither the Loan Facility Agreement, nor the Inter-creditor Agreement was submitted to parliament for approval. This happened due to the formalistic reason of the privatelaw nature of these intergovernmental agreements. In the worst scenario, Finland’s losses from its guarantee commitment under the EFSF Framework Agreement could amount to 30 billion euros, which corresponds to more than a half of the annual budget. However, the Constitutional Law Committee considered that the Framework Agreement included factors which, when taken

662  Tuomas Ojanen together, would ‘soften’ the impact of the Framework Agreement on parliament’s budgetary power.26 First of all, the Committee noted that all major decisions in the EFSF affecting Member States’ guarantee liabilities require unanimity. Moreover, the Committee took constitutional notice of section 96 of the Constitution, effectively giving the Grand Committee of parliament the right to decide on the position of Finland’s representative in the Board of Directors. Moreover, the domestic implementing enactment included a provision, which obliges the government to seek parliament’s authorisation for every guarantee given under the Agreement. As a result of all these factors, the involvement of parliament secures the constitutionality of the Framework Agreement.

B.  Treaty Establishing a European Stability Mechanism The ESM Treaty was examined by the Constitutional Law Committee three times in light of its impact on the budgetary power of parliament and the sovereignty of Finland, as enshrined in section 1 of the Constitution, in general.27 In addition, the Committee took notice of Finland’s ability to respect its constitutional obligations. It warrants emphasis that the constitutional deliberations by the Committee on the ESM Treaty took place before the 2012 constitutional amendment entered into force. The Committee noted that Finland’s subscription to the authorised capital stock of the ESM amounts to 12.5 billion euros, which was more than a quarter of the annual state budget. If that liability were to be paid in a single instalment, this could, at least arguably, violate parliament’s constitutionally anchored budgetary power, as well as national sovereignty. Furthermore, the financial capacity of the state to observe its constitutional obligations might be jeopardised.28 However, the Committee also noted that the ESM Treaty divides the authorised capital stock into paid-in and callable shares. The liability of the ESM members deriving directly from the Treaty covers merely the paid-in shares, which for Finland amounts to 1.4 billion euros. Moreover, all major decisions affecting Finland’s financial liability – such as calls for unauthorised unpaid capital and changes in the authorised stock capital – must be taken by mutual agreement, ie unanimously, by the Board of Governors. The requirement of mutual agreement also covers major decisions on the stability support provided by the ESM. In this light, the established veto power of each individual Member State provides the Finnish parliament (the Grand Committee) with both de jure and de facto influence on the government’s voting position in the procedure under section 96 of the Constitution. According to the Constitutional Law Committee, all this effectively softens the Treaty’s impact on Finland’s sovereignty and parliament’s fiscal power, resulting in compatibility with the Constitution. However, the ESM Treaty also provides for an emergency procedure, where decisions can be made by a qualified majority of 85 per cent of the votes cast. In that procedure only the three largest euro states – Germany, France and Italy – retain their veto power. According to Article 4(4) TESM, the emergency procedure ‘shall be used where the Commission and the ECB both conclude that a failure to adopt a decision to grant or implement financial assistance would threaten the economic and financial stability of the euro-area’. When the draft ESM Treaty with its emergency 26 See Protocol 11/2011 by the Constitutional Law Committee. 27 Opinions 1/2011, 22/2011 and 13/2012 by the Constitutional Law Committee. 28 Due to the institution of exceptive enactment, a contradiction with the Constitution is not an insurmountable ­obstacle to accepting an international Treaty and incorporating its provisions in the domestic legal order. However, such a conflict would entail a requirement of a two-thirds qualified majority of the votes cast in parliament (see section 94, subsection 2 and section 95, subsection 2, of the Constitution).

Finland  663 procedure was introduced in late 2011, it gave rise to interpretive doubts as regards the question whether the emergency procedure only applies to decisions on granting assistance or whether decisions directly affecting the liability of members, such as calls for unauthorised unpaid c­ apital, were also within the scope of application of an emergency procedure. In December 2011, the Constitutional Law Committee took the view that the emergency procedure under the draft ESM Treaty was in conflict with the Constitution if provision on the emergency procedure were retained in this original form.29 Hence, Finland demanded that the controversial draft provision should be amended to the effect that decisions affecting the liability of Members were left outside the emergency procedure. As this was also done during further Treaty negotiations, the constitutional conflict was resolved. In June 2012, the Constitutional Law Committee gave its final Opinion on the government Bill on the domestic ratification and incorporation of the ESM Treaty.30 In its Opinion, the Committee reviewed the ESM Treaty by taking into account Finland’s previous commitments under the Greek rescue package and the EFSF Framework Agreement as a whole. The Committee found the ESM Treaty to violate neither the constitutional budgetary powers of parliament, nor the national sovereignty of Finland. The Committee also did not consider that the commitments under the ESM Treaty, the Greek rescue package and the EFSF Framework Agreement as a whole would jeopardise the state’s capability to meet its constitutional financial obligations. Furthermore, the Committee stressed parliament’s right to information on decision-making under the ESM Treaty.

C.  Treaty on Stability, Coordination and Governance The Constitutional Law Committee regarded the TSCG as curtailing the budgetary powers of parliament.31 The Fiscal Compact builds on the Six Pack legislation by making the supervision of budgetary commitments more effective, and its added value is that it demands that a structural budgetary rule and a debt brake have to be introduced in the contracting parties’ national legislation. The Committee considered these limitations significant in comparison with limitations previously originating in the EU Treaties and the Stability and Growth Pact. Yet, the Committee took the view that the Fiscal Compact did not amount to constitutionally significant limitations to the budgetary powers of parliament within the meaning of sections 94 and 95 of the Constitution. The argument was that the Fiscal Compact offers greater guarantees for the domestic implementation of the duties since the obligation to abide by the balanced budget rule already existed. The main novelty of the Fiscal Compact is to provide national guarantees for its implementation. From the Finnish constitutional law perspective the crucial aspect was – and still is – that this Treaty did not establish any significant new competences at the European level. Instead, the Fiscal Compact ‘only’ underlines the Member States’ own responsibility for their fiscal and budgetary politics within the EMU framework.32 The requirement in some previous drafts of the Fiscal Compact to include the guarantees included in the Constitution would have caused serious difficulties in Finland. An international agreement specifically obligating a state to amend its constitution certainly appeared as 29 Opinion 22/2011 by the Constitutional Law Committee. 30 Opinion 13/2012 by the Constitutional Law Committee. 31 Opinion 37/2012 by the Constitutional Law Committee. See also earlier Opinion 24/2011 on the draft Fiscal Compact by the Committee. 32 See Opinions 37/2012, 34/2011 and protocol 49/2012 by the Constitutional Law Committee).

664  Tuomas Ojanen an extremely odd obligation from the perspective of the Finnish Constitution. Later, however, the national obligation for inclusion of a balanced budget rule was formulated in a more relaxed manner, which did not require the adoption of exact constitutional guarantees. In Finland, the balanced budget rule of the Treaty was introduced by means of adopting an ordinary Act of the parliament.33 Under this Act, the correction mechanism for the case of deviation of the balanced budget rule is built on duties of reporting and informing between the government and parliament (section 4). It also includes a plan for how the deviations will be corrected by the end of the following year. The mechanism includes three stages. First, the government initially has the choice of adopting pre-emptive corrective measures at its own initiative. Second, if the problem persists and Finland receives a recommendation by the Council, the government needs to consider giving a report to the parliament. According to section 44, subsection 2 of the Constitution, no decision on confidence in the government or its members shall be made in the consideration of a report. Third, if the Council establishes that Finland has not taken sufficient measures, a statement within the meaning of section 44 of the Constitution must be given to the parliament, and in that statement the government must clarify in detail how the deviation of the balanced budget rule will be corrected. According to section 44, subsection 2 of the Constitution, a vote of confidence in the government or a minister shall be taken at the conclusion of the consideration of a statement, provided that a motion of no confidence in the government or the minister has been put forward during the debate. Hence, the consideration by parliament of the government’s statement includes a mechanism of political accountability and, accordingly, the possibility of testing whether the government’s plans on corrective measures enjoy sufficient political acceptability and democratic legitimacy.

D.  Amendment of Article 136(3) TFEU Article 136 TFEU was amended by a decision of the European Council through the simplified revision procedure under Article 48(6) TFEU. After the amendment, Article 136(3) TFEU provides that The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.

The Constitutional Law Committee dealt briefly with this (draft) amendment when considering the proposal for the Six Pack legislation in 2010.34 The Committee emphasised then that no new competences could be transferred to the EU under the simplified procedure under Article 48(6) TFEU. As a consequence, sanctions involving the loss of voting rights by a Member State could not be introduced under this procedure. Later, when dealing with the government proposal for the domestic approval of the decision by the European Council, the Constitutional Law Committee took the view that the amendment of Article 136(3) TFEU was not of ‘legislative nature’, but ‘otherwise significant’ within the meaning of section 94, subsection 1 of the 33 Law No. 869/2012. (In Finnish: Laki talous- ja rahaliiton vakaudesta, yhteensovittamisesta sekä ohjauksesta ja hallinnasta tehdyn sopimuksen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta ja sopimuksen soveltamisesta sekä julkisen talouden monivuotisia kehyksiä koskevista vaatimuksista. In Swedish: Lag om sättande i kraft av de bestämmelser som hör till området för lagstiftningen i fördraget om stabilitet, samordning och styrning inom Ekonomiska och monetära unionen och om tillämpning av fördraget samt om kraven på de fleråriga ramarna för de offentliga finanserna). According to section 17, para 1, ‘national languages of Finland are Finnish and Swedish’. All laws and decrees exist in both Finnish and Swedish. 34 Opinion 49/2010 by the Constitutional Law Committee.

Finland  665 Constitution. The reasoning of the Committee was that despite being primarily declaratory and technical, the amendment nonetheless had an impact on the EU Treaty system as previously approved by parliament. Given also the turbulence of the EMU during the euro crisis, the amendment could be seen as being of particular importance for the EU with the outcome that the acceptance of parliament was needed for the amendment.35

E.  EMU Reform Scenarios EMU reform scenarios have been considered from the same constitutional perspectives as were EMU-related measures. Hence, constitutional considerations have stemmed from concerns relating to national sovereignty, the budgetary powers of parliament and the democratic legitimacy and accountability of EMU reform scenarios. One of the basic requirements has been that EMU reform scenarios should also preserve the primary responsibility for state finances and budgetary powers of the EU Member States in the future. A distinct constitutional concern has been that the EU inter-institutional balance should remain intact while reforming the EMU.36 In addition, Finland has insisted that all reforms should take place within the framework of the legal and institutional structure of the EU. From this constitutional stance, Finland has been critical of the adoption of EU-related measures outside the EU legal order from the outset.37 In May 2018, the Constitutional Law Committee dealt with the government’s communication on the EMU reform proposal package under the so-called Saint Nicholas Package.38 In late 2017, the Constitutional Law Committee had already dealt with the government’s communication on the reform of the EMU, and in that opinion the Committee emphasised the importance of securing parliament’s right to receive information and the necessity of taking into account sovereignty and budgetary powers of parliament in the context of EMU reform proposals.39 The Constitutional Law Committee’s opinion on the proposed EMU reform measures under the so-called Saint Nicholas Package is quite general and it largely reiterates earlier constitutional positions of the Committee regarding EMU integration. In more detail, the following important observations emerge from the Committee’s opinion. –– The Committee noted that, as an EU and EMU Member State, Finland is, as a matter of constitutional law, for its part responsible to further develop and promote EMU integration. Accordingly, the constitutional starting point by the Committee for considering the reform package was favourable and positive, rather than critical or negative.

35 Opinion 6/2011 by the Constitutional Law Committee. 36 See eg Opinion 55/2017 by the Constitutional Law Committee. 37 For more recent Opinions, see eg Opinions 55/2017 and 13/2018 by the Constitutional Law Committee. 38 Opinion 13/2018 by the Constitutional Law Committee. The EMU reform proposal package includes the following proposals: European Commission, ‘Communication on new budgetary instruments for a stable euro area within the Union framework’, COM (2017) 822; European Commission, ‘Communication on a European Minister of Economy and Finance, European Commission’, COM (2017) 823; ‘Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States’, COM (2017) 824; European Commission, ‘Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006’, COM (2017) 826; European Commission, ‘Proposal for a Council Regulation on the establishment of the European Monetary Fund’, COM (2017) 827. 39 Opinion 55/2017 by the Constitutional Law Committee.

666  Tuomas Ojanen –– The Committee briefly addressed the legal basis of the reform package in the EU treaties because most of the envisaged reform proposals would consist of passing secondary EU law. Besides that, the Constitutional Law Committee dealt with the reform package in accordance with section 96 of the Finnish Constitution on the participation of the parliament in the national preparation of EU matters, the provision of which can only apply to competences that are already conferred upon the EU. Hence, one of the salient questions is whether the reform package would give rise to such additional obligations that were not yet conferred to the EU by Finland. However, instead of delving into this question, the Constitutional Law Committee contented itself with observing that the government should work at the EU level towards securing an adequate legal basis for the reform package. –– The Committee reiterated at length the essence of its previous constitutional approach regarding the EMU reform, particularly that on the Fiscal Compact. Accordingly, the Committee emphasised the need to take appropriate notice of the possible effects of the proposed measures on the parliament’s budgetary competences. This had the purpose of ultimately ensuring that the commitments under the proposed EU measures would not jeopardise the observance of the State’s constitutional obligations, such as those stemming from social rights. Similarly, the Committee reiterated the need for the Parliament to be effectively informed on the further negotiation process of the EMU reform package at the EU level. –– Last and most importantly perhaps, the Committee took the view that, on the basis of the information available in the government’s communication, the proposed reform package seemed to be largely, if not exclusively, reiterating already existing rules pertaining to EMU integration without significantly altering the current state of EMU law. Hence, the Committee concluded that the reform package did not appear to entail such qualitatively new limitations on the budgetary prerogatives of the Finnish parliament or the sovereignty of Finland in general that would give rise to major constitutional concerns in Finland. It warrants notice that the Constitutional Law Committee’s opinion – like most of its other opinions for that matter – was based on the information available in the government’s communication on the reform package. As with other opinions, the Committee’s opinion also remained silent on several issues explicitly dealt with in detail in the government’s communication on the reform package. For instance, the Constitutional Law Committee’s opinion is silent on the motion to elect a vice president of the Commission as chairperson of the Eurogroup. In its communication to parliament in accordance with section 96 of the Constitution, the government had taken a negative stance on that motion. Given that the Constitutional Law Committee ultimately concurred with the government’s communication, it can be said that the Committee also shared the critical views of the government regarding such issues as double-hatting of the European Finance Minister, even if this did not trigger any constitutional concerns.

F.  Constitutional Concerns about Transparency and Openness Over Measures to Combat Euro Crisis Strong rights for parliament to receive information on the preparation of EU measures or EMU-related measures entail, among others, that parliamentary documents are open for public scrutiny as a matter of principle. In practice, this is reflected in the major part of the government’s correspondence with parliament in EU and EMU-related matters, as well as the minutes and

Finland  667 other related documents of the committees of parliament, being publicly available, often in both official languages in Finland (Finnish and Swedish), on the parliament’s website.40 However, the confidentiality of many of the EMU-related proposals until the decisions were made has caused tensions with parliament’s right to receive information and the Finnish constitutional-political culture of openness and transparency in general. While confidentiality as such cannot be a valid reason for derogating from parliament’s access to information on EU affairs (or EU-related matters outside the EU legal order), it is permissible for the government, if necessary, to exceptionally request parliament’s Grand Committee to maintain confidentiality for a limited period of time. Section 50, paragraph 3 of the Constitution explicitly provides that when considering matters relating to Finland’s international relations or EU affairs, the members of a Committee shall observe the level of confidentiality considered necessary by the Foreign Affairs Committee or the Grand Committee after having heard the opinion of the government. However, it has become somewhat of a problem in matters revolving around the euro crisis that the government has so often requested confidentiality on the ground that there would otherwise be a risk of harm to Finland’s EU relations. Thus far, the Grand Committee has always consented to these requests for confidentiality, despite criticising the supranational tendency towards preparing these kinds of matters in secret. The Committee has also reminded that ‘democracy also requires that the principles of transparency and public access to documents are secured in the development of EMU’.41 The openness and transparency of documents pertaining to the euro crisis has on one occasion been tested before the Finnish courts. The case was about the legality of secrecy in the context of the Greek government collaterals. In May 2013, the Supreme Administrative Court of Finland ruled on the numerous appeals relating to the publicity of the Greek bail-out collaterals. These appeals were largely refused by the Finnish Ministry of Finance at the time of signing the pact, at the request of the Greek government. In its judgment, the Supreme Administrative Court observed that exceptions to the right to receive information always need to be construed narrowly, and to be examined on a case-by-case basis. The authorities should also consider the possibility of partial access to documents in order to secure the right to information as widely as possible. From these premises, the Court went on ruling that there were no justified grounds for limiting public access to documents and, accordingly to the main bulk of information, save for some minor details. It, thus, ordered the Ministry of Finance to allow access to the documents and, in any case, guarantee partial access to information (even if a certain document in some parts contained secret information) (Judgment of 14 May 2014 by the Supreme Administrative Court of Finland).

IV.  Constitutional Rules and/or Practice on Implementing EMU Related Law The Constitution of Finland requires EU legislation which is of a ‘legislative nature’ to be implemented through an Act of parliament. EU legislation can be regarded as being of a ‘legislative nature’ within the meaning of the Constitution when the EU Act in question regulates, inter alia, the rights and obligations of private parties, or otherwise pertains to matters governed by Acts of

40 For

the public nature of parliamentary activity, see section 50 of the Constitution. 4/2012 by the Grand Committee on the Banking Union and the Future of the EMU.

41 Opinion

668  Tuomas Ojanen parliament. If a certain EU or EMU-related measure is not deemed to be of a ‘legislative nature’, it suffices to be implemented by a decree, issued either by the government or the competent ministry. However, EMU-related instruments such as the TESM and TSCG assume the form of ad hoc intergovernmental treaties under international law. Hence, their ratification and incorporation have taken place in accordance with section 94 (Acceptance of international obligations and their termination) and section 95 (Bringing into force of international obligations) of the Constitution which regulated the relationship between domestic law and international law in line with the so-called dualistic model in Finland. According to section 94 of the Constitution, the acceptance of the parliament is required for such treaties and other international obligations that contain provisions of a legislative nature, are otherwise significant, or otherwise require approval by the parliament under this Constitution. Moreover, section 94 provides that a decision concerning the acceptance of an international obligation or the denouncement of it is made by a majority of the votes cast. However, if the proposal concerns the Constitution or an alteration of the national borders, or such transfer of authority to the EU, an international organisation or an international body that is of significance with regard to Finland’s sovereignty, the decision shall be made by at least two-thirds of the votes cast. When assessing government proposals for the ratification and incorporation of the TESM42 and TSCG,43 the Constitutional Law Committee considered that both treaties required the acceptance by parliament above all for their impact on the budgetary powers of parliament. However, the Committee was also of the view that neither the TESM, nor TSCG entailed such transfer of authority that was ‘of significance’ with regard to Finland’s sovereignty within the meaning of section 94 of the Constitution. Hence, it sufficed to take the respective decisions concerning the acceptance of these two treaties by a majority of the votes cast in parliament. Thus, the Committee concluded that the proposals for the Acts on the implementation of the TSCG44 and TESM45 did not concern the Constitution or such transfer of authority that is of significance with regard to Finland’s sovereignty within the meaning of section 95 of the Constitution. Consequently, these domestic implementing enactments were considered in accordance with the ordinary legislative procedure pertaining to an Act. In essence, this entails that the legislative proposal can be accepted or rejected by a majority of the votes cast. The Acts on the implementation of the TESM and TSCG neatly illustrate the most frequently used method of implementing treaties in Finland, ie the method of incorporation through an Act of parliament in blanco. As a result, the incorporating enactments of these two treaties simply state that the treaty provisions are in force as law in the Finnish legal order. For instance, section 1 of the Act on the implementation of the TSCG simply provides that section 1 of the Law No 869/2012 provides that the legislative provisions of the TSCG ‘are in force as law inasmuch as Finland has committed itself to them’, which incorporates the relevant part of the TSCG into the Finnish legal order. Effectively, section 1 brings into force domestically Article 3 of the TSCG on the balanced budget rule without the need for further specification in national legislation. Section 2 of the Act, in turn, provides that the government is responsible to set out the medium-term objective in accordance with the TSCG. Similarly, there are no distinct domestic legislative provisions on 42 Opinion 13/2012 by the Constitutional Law Committee. 43 Opinion 37/2012 by the Constitutional Law Committee. 44 Act No 869 of 2012 on implementation of the TSCG and the budgetary framework directive No 869/2012 as well as its subsequent amendments as introduced by the Act No 18/2017. 45 Act No 402 of 2012 on the implementation of the Treaty establishing the European Stability Mechanism.

Finland  669 those provisions of the TSCG that regulate convergence towards the medium-term objective or exceptional circumstances (escape clauses). However, again, section 1 of the Act on the implementation of the TSCG effectively brings them into force in Finnish law. In conclusion, therefore, the domestic incorporation enactment of the TSCG ensures full compliance of Finnish law with the TSCG.

V.  Resulting Relationship between EMU Related Law and National Law – Concluding Remarks The constitutional concerns expressed by Finland’s Constitutional Law Committee of Parliament regarding EMU-related measures, crisis management measures and EMU future scenarios bear much resemblance to those of the German Constitutional Court. Often, however, the constitutional premises and reasoning adopted by the Committee assume more interest than the actual conclusion or outcome. Namely, despite the constitutional concerns it has evoked, the Constitutional Law Committee has so far invariably found various measures to be compatible with the Constitution, albeit sometimes after some adjustments (eg ESM Treaty). Indeed, despite some constitutional concerns and political criticism regarding the EU’s eurozone strategy, Finland has so far eventually adopted and implemented all euro crisis measures. For instance, the Committee has ultimately taken the view that stability mechanisms have limited parliament’s budgetary powers and the sovereignty of Finland, but they have not, even as a whole jeopardised neither the national fiscal sovereignty, nor the ability of the state to observe its constitutional duties. Participation in these mechanisms has not been understood as a significant limitation of sovereignty in terms of sections 94.2 and 95.2 of the Constitution, even though they have entailed significant economic liabilities with potential consequences for the state’s future democratic choices, in particular if all potential risks are to realise in their entirety. One can certainly challenge this view, eg by maintaining that national sovereignty and budget autonomy is not only threatened by financial liabilities related to emergency assistance and financial stability mechanisms, but also by the gradual evolution of the European economic governance with the Stability and Growth Pack reforms of the Six Pack, Two Pack, and the Fiscal Compact at their apex. Yet, it can also be argued that effective participation of Finland in all these measures and mechanisms is a way of contributing to the stability of the Eurozone, thus enabling Finland and other EU Member States to exercise their financial competence in a tightly integrated union. Actually, the Finnish approach in the area of EMU affairs has relied on a finding that sovereignty in state finances is de facto at least partly exercised through participation in the EMU, and through the adoption of stability mechanisms. In short, Finland has been so far of the view that such active participation is crucial in guaranteeing that the Member States’ financial and budgetary competence remains genuine. In recent years, however, this way of thinking has been challenged. This is highlighted by the fact that the Constitutional Law Committee has increasingly seen unanimous decision-making in the stability mechanisms or other measures as a crucial constitutional precondition for compatibility of various EU measures with parliament’s budgetary powers and Finnish sovereignty in general. In contrast with the earlier Finnish approach to European integration, with a strong emphasis on loyal cooperation, the domestic constitutional and political desire nowadays seem to focus on the preservation of Finland’s interests in decision-making. True, the possibility of invoking this option has always been considered significant from the point of view of sovereignty but the possibility of a Finnish veto has previously remained ‘just a theory’, rather than something real

670  Tuomas Ojanen because the predominant thinking for a long time was that the active participation of Finland – eg the participation of a Finnish representative in decision-making within the ESM – is actually an active exercise of sovereignty. Hence, the possibility of preventing EU level decision-making was of secondary significance, if even that. However, things have changed. In the 2010s, a crucial issue in the considerations of the Constitutional Law Committee has often been whether a possible amendment of a state’s maximum liabilities could take place without unanimity, thus opening up a possibility of amendment without Finnish approval. This constitutional ‘fixation’ on the unanimity requirement, together with overall changes in Finland’s EU policy-making, features as a significant departure from the earlier political-constitutional stance that shaped and directed Finland’s participation in EU integration in the late 1990s and the early 2000s. At the time, the predominant political thinking was that Finland’s role in EU integration should primarily be based on active and loyal participation in all EU decision-making and less on the legal-constitutional competence of preventing such decision-making.

References H Krunke, B Thorarensen (eds), The Nordic Constitutions: A Comparative and Contextual Study (Oxford, Hart Publishing, 2018). J Lavapuro, T Ojanen, M Scheinin, ‘Rights-based constitutionalism in Finland and the development of pluralist constitutional review’ (2011) 9 International Journal of Constitutional Law 505. P Leino, J Salminen, ‘Constitutional Change Through Euro Crisis Law: Finland. A country report on the impact of crisis Instruments on the legal structures of the EU Member States commissioned by the European University Institute’ (published on 20 May 2014). A Mutanen, ‘Towards a Pluralistic Constitutional Understanding of State Sovereignty in the European Union? – The Concept, Regulation and Constitutional Practice of Sovereignty in Finland and Certain Other EU Member States’ (Helsinki, University of Helsinki, 2015). T Ojanen, ‘The Europeanization of Finnish Law’ in P Luif (ed), Österreich, Schweden, Finland – Zehn Jahre Mitgliedschaft in der Europäischen Union (Vienna, Böhlau Verlag 2007) 145.

28 Sweden JOAKIM NERGELIUS, ELEONOR KRISTOFFERSSON

Abstract: The Swedish Constitution was changed in the 1990s (Chapters 9 and 10) in order to facilitate the Swedish membership of the EU and subsequently, its participation in the eurozone. However, after an ill-fated and legally doubtful referendum in September 2003, where a clear majority (56 per cent) voted no to accession to the eurozone, the issue of EMU membership and its legal consequences has hardly been discussed at all. This is largely due to the widespread belief that Sweden benefited from staying outside the eurozone during the subsequent financial crisis, but it is surprising. It may not be explained by any sort of constitutional tradition. The government’s response to recent reform proposals from the EU Commission has been technical rather than political. Key words: Constitutional change, transfer of decision-making power, convergence criteria, constitutional culture, EU law, international treaties, EMU reform proposals.

I.  Main Characteristics of the National Constitutional System (Including the Judiciary) Sweden is a monarchy and a parliamentary democracy. The Swedish Constitution consists of four fundamental laws – the Instrument of Government (IG),1 the Act of Succession,2 the Freedom of the Press Act3 and the Fundamental Law on Freedom of Expression.4 The central provisions are contained in the IG.5 The most important of the constitutional acts, Regeringsformen (the IG), was enacted in 1974 and entered into force in 1975. Additionally, the 1810 Act of Succession, regulating the ­succession to the throne, and the 1949 Freedom of Press Act are both important parts of the Swedish

1 Regeringsformen (1974:152) with major changes by SFS 2010:1408. 2 Successionsordning (1810:0926). 3 Tryckfrihetsförordningen (1949:105). 4 Yttrandefrihetsgrundlagen (1991:1469). See also Ch 1 Sec 3 IG. 5 See Magnus Isberg, The Constitution of Sweden. The Fundamental Laws and the Riksdag Act (Stockholm, Swedish Riksdag, 2016) 9. Sweden has the world’s oldest Freedom of Press Act, which stems from 1766 (when Finland was a part of Sweden). Its main aim was to abolish censorship and to guarantee the public’s access to official documents. The Fundamental Law on Freedom of Expression is the newest constitutional law enacted in 1991, focusing on media such as TV, radio, movies and now also the internet.

672  Joakim Nergelius, Eleonor Kristoffersson constitutional heritage, whereas the Freedom of Speech Act from 1991 is an extension of the latter one, making it applicable also to new media such as TV and movies. A number of significant basic human rights are covered both by the IG and by the European Convention of Human Rights (ECHR), applied as Swedish domestic law since 1995. In general, the constitutional tradition in Sweden is weak, and it is only in the last ten years that an increased interest in constitutional issues has become visible among scholars and the media. The first written Swedish Constitution dates back to the fourteenth century, the so-called Konungabalken (King’s Act) of what is referred to as Magnus Eriksson’s landslag (national law). The Act contained rules on the modalities to elect kings and high officials and on the tasks of the råd (council), the government of the time. Despite a few modifications, this basic Constitution continued to apply at least in part until 1634, when the first IG or Regeringsform was enacted. Thus, the birth of the modern Swedish state in 1523 did not alter Sweden’s constitutional development. The IG was a very modern constitution for its time. It established the administrative features of the Swedish state that still mostly exist. Because of the centralisation of the administration, the main public authorities were regulated in the Constitution. The relative strength of the administrative tradition compared with the constitutional tradition can be, in part, traced back to this period. It was under this Constitution that embryonic parliamentarism was developed in Sweden for the first time. It was decided in 1660 that the four stånd, ständer (social classes) – a­ ristocracy, clergy, merchants and farmers – should form a parliament. This was the basis for Swedish parliamentarism until 1866 when a bicameral system was introduced. Nevertheless, autocracy prevailed for some time. The subsequent IG, in 1720, emphasised the different functions of the state more clearly, and it was under this modernised Constitution that political parties came into existence. The king had to govern the country according to the wishes of the council. He had two votes but had to bow to the will of the majority. It was also during this period that the concept of constitutional law – a type of law that is more difficult to change than an ordinary law – took hold, and it became necessary to define which laws were constitutional. One of the laws so defined was the 1766 Freedom of Press Act, containing, among other things, rules on public access to documents. After yet another period of autocracy, the king had to resign in 1809, and a new Constitution was established. This 1809 IG formally remained in force until the end of 1974, by which time it had become the second oldest written Constitution in use anywhere in the world. This fact illustrates the peaceful development that the country has enjoyed for the last two centuries. However, some of the most important provisions in the 1809 Constitution, such as the right of the king to govern the state alone, or his two votes in the highest court, gradually became obsolete. After the general democratic breakthrough of the early 1920s, most of the Constitution was seen to have lost force and validity. There were a number of reasons why the Constitution of 1809 lost its influence so quickly. One of them is the introduction of the bicameral parliament in 1866. The democratisation around 1920 also made its provisions concerning eg, the power of the king obsolete. After that, crucial constitutional events like legislation, or the appointment of the government, among others, took place in a way that was not in accordance with the formal Constitution. This is one of the main reasons why the Swedish constitutional tradition is so weak compared to many other democratic states.6 The peaceful domestic development is undoubtedly another reason for that weak tradition. 6 One author, Fredrik Sterzel, has described the period from 1920–74 as ‘the half-century without a constitution’, which seems to be a good description. See Fredrik Sterzel, Författning i utveckling, Uppsala, Iustus, 1998.

Sweden  673 A new wave of constitutional reform started in the 1950s when the situation without a formal Constitution was seen as somewhat of a problem. The bicameral parliament was replaced by a unicameral system in 1970, and the current Constitution was enacted in 1974. Significant reforms were added in 1976, 1979, 1994 and 2010, in particular strengthening the protection of basic human rights. Nevertheless, the emphasis on popular sovereignty is still very strong. A core concept of the Constitution is that all political power rests with the parliament, representing the people. This emphasis on popular sovereignty led to general political unanimity on the need to let popular sovereignty prevail in the new Constitution. It should also be noted that this Constitution was enacted in 1974, at a time, when the generally positive development of the the society since 1920 had developed into the Swedish welfare state that had peaked in terms of success and confidence in the wisdom of politicians and their ­decision-making was widespread. In 2010, an element of the separation of powers was finally introduced in the Constitution, with a whole new rule for the courts, who have their own Chapter (11) in the IG and increased scope for judicial review of laws. Chapter 4 IG concerns the work and the procedures of the Riksdag (parliament). More detailed rules are laid down in the Riksdag Act,7 which has a semi-constitutional status since it can only be changed by a three-fourths qualified majority of the members of parliament (MPs), or in the same way as the Constitution, ie, through two identical decisions before and after a general parliamentary election. Elections to the parliament, regions and municipalities take place every four years. The electoral system is proportional and gives representation to all parties that reach four per cent of the votes cast in the election. The last election was in September 2018. Sweden is a unitary state that is divided into 20 Landsting/regioner (counties/regions) at the regional level and 290 Kommuner (municipalities) at the local level. The local self-government is extensive. The main activities of the municipalities are pre-school, school, social services and elderly care. The municipalities have their own taxing rights.8 In fact, most public and welfare activities are organised and conducted at the local level. A fundamental law is enacted by means of two parliamentary decisions of identical wording. With the first decision, the proposal for the enactment of fundamental law is adopted as being held in abeyance. The second decision may not be made before elections to the Riksdag have been held throughout the Realm following the first decision, and the newly-elected Riksdag has convened. At least nine months shall elapse between the first submission of the matter to the Chamber of the Riksdag and the date of the election unless the Committee on the Constitution grants an exception. Such an (exceptional) decision shall be taken no later than at the committee stage, and at least five-sixths of the members must vote in favour of the decision.9 Under certain circumstances, a referendum on a proposal to amend a fundamental law may be held. This is the case if at least one-third of the members of the Riksdag, ie, not less than 117 members, support the proposal, initiated by at least 10 per cent of the members of the Riksdag, to hold a referendum. The referendum must be held on the same day as the Riksdag election preceding the second decision. If a majority of the voters vote against the proposed amendment, and if these exceed in number half of those registering valid votes in the Riksdag election, the proposed amendment is rejected.10 Such a referendum on a question of fundamental law has not yet been held in Sweden.



7 Riksdagsordningen

(2014:801). 14, Art 4 IG, see also Ch 8 Art 2 Sec 1 p 3. 9 Ch 8 Sec 14 IG. 10 Ch 8 Sec 16 IG. 8 Chapter

674  Joakim Nergelius, Eleonor Kristoffersson As mentioned above, the Riksdag Act can be amended in the same way as the fundamental laws, without the additional option of a referendum and without the nine-month time limit. Furthermore, the Riksdag Act can be and is usually amended by means of a single decision, provided that at least three-fourths of those voting and more than half of the members of the Riksdag vote in favour of the decision.11 Sweden does not have a constitutional court. Instead, the ordinary courts are obliged to consider the Constitution in specific cases. Judicial review has grown in importance in recent years, in particular after the change in Chapter 11, Article 14 of the IG in 2010, when the former ‘requirement of manifest error’ (ie, that courts could only set aside laws that were manifestly unconstitutional) was abolished. In comparison with many other countries, Sweden can be said to have a weak constitutional culture. However, judicial review of laws exists and has grown in importance in recent years after the constitutional change in 2010, as mentioned above. Thus, if an ordinary or administrative court finds that a provision conflicts with a rule of fundamental law or another superior statute, the provision shall not be applied. The same applies if a procedure on the enactment of the rule laid down in law or the IG12 has been disregarded in any important respect when making the provision.13 There is a bill of rights in Chapter 2 of the Swedish Constitution, which until recently was seldom applied. Arguments in human rights cases in Sweden are usually not based on the constitution but on the ECHR and the EU Charter of Fundamental Rights. A recent exception, however, perhaps indicating a new trend, is the case NJA,14 where a person, who had wrongly lost his Swedish citizenship, unconstitutionally, was given a substantial financial compensation. The same happened again in 2018.15 Sweden follows the dualist tradition in relation to treaties. Thus, treaties are not part of national law until duly incorporated through a decision of the parliament, generally through an act of legislation. The Supreme Court, the courts of appeal and the district courts are courts of general jurisdiction.16 There are 52 district courts, six courts of appeal and one Supreme Court. These courts deal with contentious cases, criminal cases and matters. Many of these disputes concern matters regarding different kinds of economic relations. For example, they may deal with claims for money or interpretation of contracts. Another large group of controversial cases are family law disputes, such as divorce cases or custody and residence cases regarding children. There are also administrative courts in Sweden. These are the Supreme Administrative Court, the administrative courts of appeal and the administrative courts as general administrative courts.17 There are administrative courts of first instance, four courts of appeal and one Supreme Administrative Court. The administrative courts deal with disputes between private persons and authorities, such as immigration, social security contributions and taxes. Concerning both kinds of courts, it may be noted that only a Swedish citizen may be a permanent salaried judge.18



11 Ch

8 Sec 17 IG. in its Ch 8. 13 Ch 11 Sec 14 IG. 14 NJA 2014 p 323. 15 NJA 2018 p 103. 16 Ch 11 Sec 1 IG. 17 Ch 11 Sec 1 IG. 18 Ch 11 Sec 11 IG. 12 Notably

Sweden  675 The Lagrådet (Law Council) reviews the constitutionality of all draft laws and thus conducts an ex ante review.19 This special council is not a court, but it consists of active or retired judges from the Supreme Court and the Supreme Administrative Court. Its opinions are not binding. However, if parliament adopts a law that the Law Council has opposed, the courts are unlikely to apply it. This conclusion is based on an analysis of Chapter 8, Articles 20–22 and Chapter 11, Article 14 IG in their new wordings of 1 January 2011. Still, there is not yet any clear jurisprudence illustrating this alleged connection between the existing forms of ex ante and ex post judicial review.

A.  Budgetary and Financial Power: Instrument of Government The headline of Chapter 9 IG is Finansmakten (financial power), which relates to the right for the state to decide on its incomes and expenses, tasks that are normally divided into taxation and budgetary regulation. While these two actions appear as the two sides of the same coin, from a strictly constitutional perspective, they are very different. This difference is perhaps best illustrated by the fact that decisions on taxes always need to be adopted through a law, but that is not the case with budgetary decisions. Those are also from certain other points of view surprisingly informal and unregulated. Thus, there is no rule in the Constitution or elsewhere concerning the formal conditions under which the government is to hand over the budget to the parliament and no legal requirement anywhere concerning the balance in the budget between incomes and expenses. It should be noted that according to Chapter 9, Article 11 IG, further rules concerning the competence and responsibilities of the Riksdag and government in respect of the adoption of the national budget may be laid down in the Riksdag Act and separate, ordinary legislation. This has in particular been the case with a law on the state budget from 2011. Chapter 9 also governs several other issues. One of these issues is the position and competencies of the Riksbanken (National Central Bank), which was changed most recently in 1998. Another, partly constitutional, reform concerning the budgetary process, which has to a certain extent affected this Chapter and, therefore, needs to be studied here, was launched in the mid-1990s in order to combat the economic crisis that affected Sweden severely in the early 1990s. Its main content was a changed decision process in the parliament, after which the parliament will only make one decision on the total sum of expenditures, instead of many decisions on ­different areas (such as health, defence or social security). Parliament’s competence in the field of taxation is first mentioned in Chapter 1, Article 4 IG. This competence has old historical roots. This is clear from a famous statement in the Constitution of 1809, which discussed ‘the ancient right of the Swedish people to be taxed’. In a way, that spirit is still present in Swedish thinking about taxation issues. It is also a well-known fact that taxes, at least for individuals, are still very high in Sweden. At the same time, it must be noted that municipal taxes are, for almost all working persons in Sweden, a much higher expense than the state tax, since everyone pays municipal taxes while state tax is reserved for people with high incomes and companies. Municipal taxes are also more important from the point of view that the main part of the well-known Swedish welfare system – schools, hospitals, elderly living and other things – is actually organised at municipal and not national level. Nevertheless, the issue of municipal tax, which will be further discussed below in Part III, is hardly mentioned at all in the Constitution.

19 On

Lagrådet, see IG Ch 8 Arts 20–22.

676  Joakim Nergelius, Eleonor Kristoffersson Furthermore, the issue of taxation is briefly mentioned in Chapter 9 IG, which focuses on the budgetary process and the competences of the parliament and government within that process. In somewhat broader terms, that relationship could be said to mean that the assets of the state ‘belong’ to the parliament, which decides on how to make use of them. The government is the executive body, which may implement and execute decisions of the parliament within this area. This relationship is clearly expressed in Chapter 9, Article 8 IG. According to Article 8 IG funds and other assets of the state are at the disposal of the government (apart from assets intended for parliament or its specific authorities). Also, Chapter 9, Articles 1 and 3 make clear that state funds may only be used as determined by the parliament.20 Concerning the budgetary procedure, under Chapter 9, Article 2 IG, the government submits proposals for a national budget to the parliament. According to Articles 3 and 7, the parliament then approves the use of state funds for different purposes by adopting a budget in accordance with the rules laid down in Chapter 9, Articles 3–5 IG. According to those rules, the parliament adopts a national budget for the next budget year.21 The parliament does so based on an estimate of public revenue and an appropriation for specific purposes (though certain appropriations may be made for other periods than the budgetary ones).22 Those rules are basically the same as those introduced in 1974. However, as far as the details and modalities of the process are concerned, in 1996, a major reform was initiated, as stated above. While the budgetary proposal from the government was previously submitted on 10 January every year, it is now submitted no later than 20 September of the preceding year (or as soon as possible after the election, should it be an election year).23 This above all gives the parliament a possibility to focus on budgetary issues during autumn and on legislation during its spring session generally considered to be more efficient. The position of the Finansutskottet (Finance Committee) has been greatly strengthened within the work of the parliament and the budgetary process overall. According to Chapter 3, Article 7 of the Riksdag Act, it may now, in all issues concerning economic policy, introduce proposals in parliament on matters falling within the competence of other committees. Under Chapter 4, Article 8 of that same Act, it shall be given the opportunity to comment on proposals from any other parliamentary committee whenever the proposal may have significant future repercussions for public revenue and expenditure.24 The reform also means that a kind of framework decisional model has been introduced. According to that model, the parliament, when it has received the budgetary proposal, shall make a decision concerning allocation and spending limits for 27 different sectors or ‘frames’ of expenditure into which the budget is divided. At the same time, the parliament will also decide on tax changes for the upcoming year. This means that future incomes may be accounted for giving the parliament a much better overview of the future economic situation than before. Once the various proposals have been dealt with, sector by sector so to speak, Chapter 11 of the Riksdag Act requires that any decision concerning appropriations for the current budget year

20 Within the constitutional doctrine, it is however generally accepted that the government may refuse to execute an envisaged payment and thus go against the parliament on certain details; see Joaquim Nergelius, Constitutional Law in Sweden, 2nd edn (The Hague, Wolters Kluwer Law & Business, 2015) 103 with details and references. 21 Which is now, since 1996, the same as the calendar year. 22 Ch 9 Art 3 Sec 2 IG. 23 In 2006, the new government, which had been presented and started work on the 6 October, presented the budget on the 16 October. It goes without saying that in such a situation, the possibility of the government deviating from the policy of the previous government is minimal indeed. 24 The general rule on the tasks and competences of that Committee is to be found in Ch 7 Art 9 of the Riksdag Act.

Sweden  677 that will affect expenditure limits are only taken after the parliament approves the adjustment of the expenditure limits. First, each committee proposes in a report the expenses that are to be approved within its area of action. After that, a debate is held in the parliament, followed by decisions on the proposals from each committee (ie, 27 decisions in total). The budget as such is not approved until then. Finally, the Committee on Finance will examine all estimates and coordinate the national budget.25 In autumn 2013, the opposition parties joined forces and thus managed to stop a tax reduction proposed by the government. This move was generally seen as contrary to the earlier practice in this field. It remains to be seen whether future opposition parties will use the rules in the same way. From a principled perspective, it is clear that the reform has strengthened minority governments. This is primarily because of the new requirement that all different areas of expenditure are voted upon, after which the total budget is agreed. This means that it is now much more difficult for majorities, who may agree on some of those elements of expenditure but not all, to go against the budget proposed by the government, unless they can agree on the whole budget between themselves. The reform was a consequence of the severe economic crisis in the early 1990s and generally considered as instrumental in solving those problems. At the same time, it must be noted that it has further limited popular sovereignty, in line with many other, simultaneous constitutional developments. The majority of the parliament is no longer, at least not always, in a position to secure or push through its will concerning the elaboration and content of such an important decision as the budget.

II.  Constitutional Foundations of EMU Membership and Closely Related Instruments The procedure for dealing with treaty amendments is laid down in Chapter 10, Article 3 IG. Under this provision, the Riksdag’s approval is required before the government concludes an international agreement that is binding upon the Realm, which is true in two main cases. First, the agreement requires the amendment or abrogation of an act of law or the enactment of a new act of law. Second, it otherwise concerns a matter to be decided by the Riksdag.26 Sweden joined the EU in 1995 after a referendum which had a turnout of 83.3 per cent with 52.3 per cent voting in favour, 46.8 per cent against and 0.9 per cent not voting. In the context of the EU accession, the following constitutional amendments were adopted. Chapter 1, Section 10 IG states that Sweden is a member of the EU. The procedure for transfer of decision-making powers is regulated in Chapter 10, Article 6 IG. According to this provision, the Riksdag may transfer decision-making authority, which does not affect the basic governance principles of Sweden within the framework of EU cooperation. Such transfer presupposes that the protection of rights and freedoms in the field of cooperation, to which the transfer relates, corresponds to the level of protection afforded under the IG and the ECHR. The Riksdag may approve a transfer of authority, provided that at least three-fourths of those voting and more than half of the members of the Riksdag vote in favour of the decision. The Riksdag’s decision may also be taken in accordance with the procedure prescribed for the enactment of fundamental law

25 See Ch 7 Art 9 of the Riksdag Act. 26 On many of those issues, see Joakim Nergelius; ‘Sweden’ in S Griller et al (eds), National Constitutions and European Integration, (Oxford, Hart Publishing, 2020 forthcoming).

678  Joakim Nergelius, Eleonor Kristoffersson (ie, by two identical decisions before and after a parliamentary election).27 Furthermore, the government shall keep the Riksdag continuously informed and consult bodies appointed by the Riksdag concerning developments within the framework of EU cooperation.28 Outside of the EU legal framework, at the intergovernmental level, it is also possible to transfer decision-making authority. This relates to laying down statutory provisions, the use of assets of the state, tasks connected to judicial or administrative functions or the conclusion or denunciation of an international agreement or obligation to international bodies outside the EU framework, with certain limitations.29 As mentioned above, the Constitution was amended in 1998 in order to accommodate EMU related measures and powers. The amendments related to Chapter 9, Sections 12 and 13 IG, regulating the financial power of the Realm. According to these rules, the Riksbank, which works under the Riksdag and is formally independent of the government, is responsible for monetary policy. No public authority may determine how the Riksbank shall decide in matters of monetary policy. The Riksbank only intervenes indirectly by raising and lowering the national interest rate. The 11 members of the Governing Council of the Riksbank are all appointed by the Riksdag. The latter also decides on whether the members of the Governing Council or the Executive Board of the Bank shall be granted a discharge of responsibility, ie, not held financially, personally responsible for their actions. A member of the Executive Board may be removed from office only if he/she no longer fulfils the requirements laid down for performing his duties or if he/she has been found guilty of gross negligence. All of these rules, aimed at ensuring the independence of the Riksbank, meet the criteria laid down in the TFEU for enabling EU Member States to join the EMU. Sweden is not a member of the EMU and is, thus, also not a member of the Treaty on the European Stability Mechanism (ESM). However, Sweden is a member of the Treaty on Stability, Co-ordination and Governance (TSCG, Fiscal Compact). The emergence of the Fiscal Compact presented the Swedish government with a choice between joining the ‘hardliners’ – the UK and the Czech Republic – who are unlikely to join the eurozone in the foreseeable future or attempting to obtain a limited influence by gaining a position nearer the centre or ‘inside, though still outside’. However, considering Article 12 of that Treaty, political influence is very meagre. For instance, it is decided through Article 12 Section 6 that the original eight states who joined

27 Ch 10 Sec 6 IG. 28 Ch 10 Sec 10 IG. 29 Ch 10 Sec 7–8 IG. The full text of these statutes reads as follows (official translation): Art 7 ‘Decision-making authority which is directly based on the present Instrument of Government and which relates to the laying down of provisions, the use of the assets of the State, tasks connected with judicial or administrative functions, or the conclusion or denunciation of an international agreement or obligation may, in cases other than those under Art 6, be transferred to a limited extent, to an international organization for peaceful cooperation of which Sweden is a member, or is about to become a member, or to an international court of law. Decision-making authority relating to matters concerning the enactment, amendment or abrogation of fundamental law, the Riksdag Act or a law on elections to the Riksdag or relating to the restriction of any of the rights and freedoms referred to in Chapter 2 may not be transferred under paragraph one. A Riksdag decision in the matter of such transfer is taken in accordance with the procedure laid down in Article 6, paragraph two.’ Art 8 ‘Any judicial or administrative function not directly based on this Instrument of Government may be transferred, in cases other than those under Article 6, to another state, international organization, or foreign or international institution or community by means of a decision of the Riksdag. The Riksdag may authorize the Government or other public authority in law to approve such transfer of functions in particular cases. Where the function concerned involves the exercise of public authority, the Riksdag’s decision in the matter of such transfer or authorisation is taken in accordance with the procedure laid down in Article 6, paragraph two.’

Sweden  679 the Treaty though not being eurozone states shall be present at the special summits whenever possible and at least once a year. This, of course, also reflects the fact that Sweden’s influence, in legal terms, on the shaping of the ‘ever more detailed economic governance regime for eurozone Member States’ has been absent. The duties arising from Articles 3(1), 4, 5 and 6 of the TSCG have been accommodated in the national legal order. The official position of the Swedish government is that Sweden already complies with those duties, as a result of economic measures and legal and constitutional changes carried out in the 1990s. Thus, no further measures were needed for Sweden to sign and ratify the TSCG. The participation in future decision-making under Article 12 of the TSCG was presented as one of the main arguments for Sweden to ratify the Treaty. In particular, during the euro crisis but also earlier, the purely political problems of remaining outside the eurozone and the limited influence that Sweden enjoys in shaping Europe’s economic policies have occasionally been underlined in the public debate. At the same time, the lack of widespread public debate concerning the problem of remaining outside the eurozone is striking. Not even when the Swedish Krona is losing much of its value, as has happened in early 2019, does the debate get energised. Swedes, in general, seem to be convinced that it was a good decision to stay outside the eurozone and the politicians hesitate to discuss the issue in any way. Future EMU membership of Sweden is facilitated by rules in Chapter 9 IG changed in 1998 in order to enable such membership. From a Swedish constitutional perspective, EMU membership is, thus, fully possible. However, now it seems highly unlikely and the issue has vanished from the public debate. A few words may be said on the background of this somewhat confusing legal situation. When Sweden joined the EU in 1995, the original decision to transfer decision-making powers to the EU included the legal situation and all the legal acts existing at that moment, the acquis communautaire. This covered EMU membership provisions, which were already elaborated on in primary EU law. Thus, the Swedish legal situation was identical to the one of Austria and Finland, who joined the EU at the same time and who are now members of the eurozone. Nevertheless, for domestic political reasons Sweden later decided to have a referendum on the EMU, that took place in September 2003 and led to a clear ‘no-result’. Sweden is, thus, the first country that remains outside the eurozone without a clear legal right to do so, while still meeting all the economic requirements. In the referendum in 2003, 55.9 per cent voted against introducing the euro as currency, whereas 42 per cent voted in favour. Between 2003 and 2008, the public support of introducing the euro was negative. This changed briefly at the end of 2009, the beginning of the global financial crisis when the Swedish Krona had been severely weakened against the euro. However, at the beginning of 2010, when the Swedish currency had strengthened, public opinion was again negative and has been so ever since.30 Sweden has formally never been considered to fulfil the convergence requirement of a stable exchange rate. The reason for this is that Sweden has chosen not to participate in the voluntary exchange rate mechanism, ERM 2. Apart from this, Sweden has always met and meets all relevant convergence criteria and has, as stressed above, never had a solid, legally binding right to remain outside of the EMU, of the kind that Denmark and the UK enjoy. Until 1 December 2009, thus,

30 See Anna Södersten, ‘Sweden’ in Constitutional Change through euro crisis law, (Florence, European University Institute, 2014).

680  Joakim Nergelius, Eleonor Kristoffersson the Swedish position lacked a legal basis. However, in our opinion, the introduction of Article 139 of TFEU has undoubtedly improved Sweden’s position, since it states (in Sec 1) that the Member States who are considered by the Council not to meet the requirements for membership shall be seen as states ‘with exceptions’ from joining the eurozone. Though perhaps not changing the situation legally, this has reduced the tension on Sweden to join the eurozone rapidly. This legally highly unclear situation is all the more regrettable since the other constitutional preparations for membership of the EMU were conducted or implemented already in 1998 and 1999, in accordance with the provisions of Chapter 8, Article 15 IG.31 These preparations consist of changes to Articles 12 and 13 IG in Chapter 9, regulating the financial power of the Realm. According to those rules, the government is responsible for general currency policy matters, while the Riksbank, working under the Riksdag and, thus, formally independent from the government, is responsible for monetary policy. No public authority may determine how the Riksbank shall decide in matters of monetary policy. A future Swedish EMU membership will thus be easy to obtain from a strictly legal point of view, but probably not when all the political aspects are taken into account.

III.  Constitutional Obstacles to EMU Integration Sweden’s official position is that in principle, the EMU reform measures proposed by the Commission32 will not affect Sweden directly since Sweden is not an EMU member. Hence, there are no constitutional issues regarding these proposals. The position of the government regarding the proposals is the following.33 The government is open to discuss a transfer of the ESM from its intergovernmental framework into the EU legal framework in the form of a European Monetary Fund.34 A financial security mechanism within the banking union can be linked to the ESM or the EMF. As regards the transfer of the substance of the Fiscal Compact to the EU legal framework,35 the government considers that the Commission’s proposal is a good basis for budgetary work. All these proposals are in line with the Swedish views on the need for a balanced budget and to avoid excessive debts, as explained above. It is stressed that the EU Member States that have not adopted the euro are now only bound by the rules if they voluntarily express their consent to them.

31 It may also be noted, in this respect, that Sweden actually conducted a severe economic policy, characterised by austerity, in 1994–6. This was explicitly made above all in order to meet the so-called convergence criteria necessary for an EMU membership, which makes the subsequent development even less logical and harder to understand. 32 European Commission, COM (2018) 823 Communication on a European Minister of Economy and Finance, European Commission, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States; European Commission, COM (2017)826 Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006. 33 All its views are to be found in Regeringskansliet Faktapromemoria 2017/18:FPM38 Paket med förslag om fullbordande av 2017/18:FPM38 EMU Finansdepartementet, 8 January 2018. 34 European Commission, COM (2017)827 Proposal for a Council Regulation on the establishment of the European Monetary Fund. 35 European Commission, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States.

Sweden  681 Regarding new budgetary instruments,36 the government considers that there are advantages in allowing the Commission to submit proposals within the EU budget framework. The government considers that a central macroeconomic stabilisation function has problematic aspects. It is, thus, critical to the recent proposals for a European Minister of Economy and Finance,37 since they may involve a confusion of roles and can lead a centralisation that the government opposes. In regard to Swedish participation in the EU Banking Union, a committee was appointed in December 2017 in order to analyse if such a move may be possible and perhaps suitable.38 Generally speaking, it is regrettable that greater debate is lacking in the public sphere and within the field of legislation, concerning the need to prepare Sweden for a future eurozone membership, which is still very likely from a legal perspective. The debate in Sweden more or less died after the unfortunate and ill-fated referendum in 2003. Since then, when the government is asked to comment on new proposals from the Commission within this field, it just gives a few technical comments, without analysing future scenarios. This is regrettable, but not likely to change in the next few years.

IV.  Constitutional Rules and/or Practice on Implementing EMU Relating Law The technique for the implementation of secondary EU law is adopting new or amending ordinary laws. National authorities often adopt national regulations or decrees in order to supplement EU regulations. Generally speaking, this issue has never given rise to much discussion in Sweden. It may be noted that the CJEU once approved that Sweden may, albeit under peculiar circumstances, implement directives using the traditional method of travaux préparatoires (preparatory works of draft legislation).39 This stems from the legal interpretation, which traditionally in Sweden and some other Nordic countries derives not only from the written law but also from the legislator’s intentions, as to be found in the travaux préparatoires. The role and involvement of the national (and regional) parliaments and governments in the national legal system and the field of national fiscal and economic policy can be described as follows. The national parliament enacts the tax laws and cannot delegate the legislative power within this field.40 The municipalities have the power to levy municipal taxes, which also means that they have the right to decide on the municipal tax rate. The same applies to the regions.41 The parliament also decides on expenses, in the annual national budget (Ch 9, Art 3–5 IG). The government is responsible for the monetary policy and decides upon the exchange rate system. The central bank may request such a decision.42 Should the Riksbank do so, the government shall deal with the request swiftly. The government shall always consult the Riksbank before

36 European Commission, COM (2017)822 Communication on new budgetary instruments for a stable eurozone within the Union framework. 37 European Commission, COM (2018) 823 Communication on a European Minister of Economy and Finance. 38 See Statens Offentliga Utredningar 09.12.2019, SOU 2019:52, Sverige och bankunionen. 39 C-478/99, Commission v. Sweden, ECR 2002 I p 4147. 40 Ch 8 Sec 3 IG. 41 Ch 14 Art 4 IG. How to decide the precise level of the tax rate is however strictly regulated by law and based upon a certain calculation made by the Swedish tax agency. Lag (1965:269) med särskilda bestämmelser om kommuns och annan menighets utdebitering av skatt, m.m. 42 Ch 9 Sec 12 IG.

682  Joakim Nergelius, Eleonor Kristoffersson it decides upon the exchange rate system.43 Thus, the parliament is only indirectly, through its appointment of the prime minister, who forms the government, involved in the monetary policy. However, it should be noted that the Riksbank is one of the few public agencies that acts under and answers to the parliament (and not to the government, as most other agencies). The government represents Sweden at the EU level. However, the government cooperates with the parliament in EU matters. This cooperation takes place in EU-nämnden (the EU Board), the committees and the ordinary parliamentary work. The government shall inform the parliament on EU matters. Also, the prime minister shall consult the EU Board before European Council meetings. The parliamentary committees may request a consultation with the government in EU matters. The parliament passes the national implementation laws of EU directives. However, should this take place through a regulation or travaux préparatoires, the government will, of course, be involved in the process, since these are included in the propositioner (legislative bills) submitted from the government to the parliament before the enactment of any new law. Binding parliamentary or governmental resolutions for the ministers in the council do not exist. However, some important changes in the Riksdag Act entered into force on 1 December 2009 (ie, on the same day as the Lisbon Treaty) concerning specific procedures related to supervision of the principles of subsidiarity and proportionality.44 Based on a report from the Constitutional Committee,45 a document-based or sector-specific model of scrutiny of the principle of subsidiarity was introduced. According to this model, the nature of the matter that will be reviewed determines which of the parliamentary committees (of a total of 20) will be responsible for exercising the new test on whether new legal acts do respect subsidiarity introduced by the Lisbon Treaty. The respective parliamentary committee may, within two weeks, ask the government to give its opinion on whether the legislative proposal in question violates the principle of subsidiarity. If the majority of the committee should then find that the principle of subsidiarity has been violated, this will also probably become the official Swedish position. The committee will make a statement or report to the parliament, suggesting that it shall declare the position of the committee to be the official position of the parliament and that the parliament should subsequently send this reasoned and justified position to the presidents of the European Commission, the Council of Ministers and the European Parliament. Furthermore, should the contested Act nevertheless get adopted and enter into force, the parliament may, in line with the protocol on the application of the principles of subsidiarity and proportionality, urge the government to initiate proceedings before the CJEU.46 Normally, formal hearings of the ministers take place before the meetings of the Council of Ministers, according to the rules in the Riksdag Act.47 The requirement is that at least five members of the EU Committee must request a hearing. Although this is relatively informal and unregulated, the ministers are supposed to represent an official, Swedish line that enjoys the support of a significant majority of the MPs. Concerning the new rules on the amendment of the Treaties (Articles 48–49 TEU), the parliament shall, according to a new rule in Chapter 9, Article 20 of the Riksdag Act, approve or reject any such new initiative, having first heard the responsible committee on its views. Here and in related areas, it seems that the committees are quite influential and active. For example, in 2016,

43 Lag

(1998:1404) om valutapolitik. but mainly additional changes in the Riksdag Act were introduced on 1 September 2014. 45 KU (Konstitutionsutskottet, the Constitutional Committee) 2009/10:2. 46 See KU 2009/10:2 p 8. 47 Ch 7 Art 12. 44 Further,

Sweden  683 there were no less than 101 surveys conducted on whether proposed EU rules violated the principle of subsidiarity.48 It may be noted that the obligation for the government to inform the parliament has expanded and now includes all documents originating from the EU.49

V.  Resulting Relationship between EU Law and National Law The general impact of EMU related law and jurisdiction on national law and vice versa is little or none in Sweden since Sweden is not a member of the EMU. From many points of view, including the recent depreciation of the Swedish Krona and the apparently increasing political problems of remaining outside the eurozone (not least after Brexit), the lack of discussion is strange and hard to explain. It is also a legal fact that the result of the referendum in 2003, 15 years ago, is not legally binding. Given that the supremacy of EU law has been acknowledged in all other areas, it is also clear that Sweden does not take its commitments in relation to the euro as seriously as it does concerning EU law in general or other commitments emanating from international law.

References European Commission, COM (2018) 823 Communication on a European Minister of Economy and Finance. European Commission, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States. European Commission, COM (2017)826 Proposal for a Regulation amending (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006. European Commission, COM (2017)827 Proposal for a Council Regulation on the establishment of the European Monetary Fund. European Commission, COM (2017)824 Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States. European Commission, COM (2017)822 Communication on new budgetary instruments for a stable euro area within the Union framework. European Commission, COM (2018)823 Communication on a European Minister of Economy and Finance. M Isberg, The Constitution of Sweden. The Fundamental Laws and the Riksdag Act (Stockholm, Swedish Riksdag, 2016). J Nergelius, Constitutional Law in Sweden, 2nd edn (The Hague, Wolters Kluwer Law & Business, 2015) J Nergelius; ‘Sweden’ in S Griller et al (eds), National Constitutions and European Integration (Oxford, Hart Publishing, 2020 forthcoming). A Södersten, ‘Sweden’ in Constitutional Change through euro crisis law (Florence, European University Institute, 2014). F Sterzel, Författning i utveckling, Uppsala, Iustus, 1998. Regeringskansliet Faktapromemoria 2017/18:FPM38 Paket med förslag om fullbordande av 2017/18:FPM38 EMU Finansdepartementet, 8 January 2018. Kommittédirektiv från Finansdepartementet, Ett eventuellt svenskt deltagande I Europeiska Bankunionen Dir. 2017:123.

48 See 49 Ch

the report KU 2017/18:5. 9 Sec 21 Riksdag Act.

684

29 United Kingdom PAUL CRAIG

I. Introduction This chapter considers the legal, economic and political position of the United Kingdom in relation to economic and monetary union. The analysis proceeds as follows. The second part of the chapter is concerned with the background arguments for and against monetary union, and the rationale for the United Kingdom’s decision not to adopt the euro. It will be seen that there were no constitutional impediments to the United Kingdom adopting the euro, and that the decision was driven by an admixture of political and economic arguments. The third part of the chapter contains an in-depth analysis of the UK opt-out in Protocol No 15. The legal provisions are complex and interesting in equal measure. Thus, while many of the Treaty provisions concerning monetary union were deemed inapplicable to the United Kingdom, as were corresponding provisions of the ESCB Statute, some such provisions continued to apply. The United Kingdom continued to be bound by most Treaty provisions on economic union, and the opt-out reveals, as will be seen, the interconnectedness of economic and monetary union. The fourth part of the chapter considers UK policy concerning EMU in the light of the opt-out. This was marked by the continuing interconnection between economic and monetary union, by UK concerns that regulation of the eurozone would spill over to non-euro states, and by the respective valuation of the euro in relation to sterling.

II.  The United Kingdom and Monetary Union: The Initial Decision The United Kingdom never joined the euro, and chose instead to retain sterling as its currency. It is important in this regard to remind ourselves of the contending arguments that played out when the decision whether or not to adopt the euro was made, and to identify the reasons that were most relevant in relation to the United Kingdom’s decision not to engage.

A.  The Economic Arguments for the Euro The case for EMU rested on two connected foundations. It was argued that EMU would foster economic growth and engender greater price stability through low inflation.

686  Paul Craig The argument that EMU would enhance economic growth was based on a number of factors, the most important being the saving of transaction costs. A single currency removed the cost of exchange-rate conversions when money moves within the EU. In 1990, the Commission calculated that the total savings would be approximately 25 billion euros.1 An equally important, albeit contested, factor was the link between the single market and a single currency. This was captured most vividly in the Commission’s slogan of ‘one market, one money’.2 It is possible to have a single market without a single currency, but it was argued that the single market would work better with a single currency. By having a single currency, businesses would save on ‘menu costs’, and would not have to maintain different sets of prices for each market. From the manufacturer’s perspective, this facilitated marketing strategies for the EU as a whole. From the consumer’s perspective, it enables direct price comparisons to be made of products in different countries. A single currency was also said to protect against the costs associated with large exchange-rate changes and competitive devaluation, which could ‘distort the single market by ­unpredictable shifts of advantage between countries unrelated to fundamentals’.3 In this sense ‘the single market needs a single currency not just to push it forwards, but to stop it sliding backwards’.4 Such currency fluctuations could slow economic growth by creating uncertainty for business, which was not conducive to investment.5 The existence of wide price differentials fuelled by different currencies led moreover to attempts by Member States to prevent parallel imports and impede intra-EU trade. It was argued that a single currency would in addition foster growth by lowering interest rates and stimulating investment. Countries would no longer have to raise their interest rates above German levels in order to stop their currencies from falling in relation to the Deutschmark.6 Investment projects ‘will become economic which were not so when they had to earn higher returns to repay expensive borrowed money, compensate for exchange rate uncertainty, and hand out high dividends to share-holders’.7 The case for EMU was also premised on the argument that it fostered stable prices and low inflation. Savers tended to gain from low inflation, since their money retained its purchasing power for longer. Inflation made it more difficult to maintain long-term business plans, and redistributed income in an arbitrary manner. Businesses incur ‘menu costs’ when inflation rates are high or constantly changing. The ERM exerted some discipline over inflation rates by the very fact that countries, in effect, linked their exchange rates to the Deutschmark, and limited their use of devaluation. Some countries however had overvalued exchange rates, which was in part the rationale for the currency crises in 1992 and 1993. It was argued that EMU offered a better, cheaper, and more stable way of reducing inflation, particularly when monetary policy was run by an independent central bank, which was not subject to short-term political pressures.

B.  The Economic and Political Arguments against EMU There were a number of differing arguments made against EMU, which can be divided into ‘contingent disapproval’ and ‘outright rejection’.

1 European

Commission, One Market, One Money (1990) ch 3. Commission’s Work Programme for 1998 (EC Commission, 1997). 3 C Johnson, In with the Euro, Out with the Pound (Penguin, 1996) 47. 4 Ibid. 5 ‘The Impact of Currency Fluctuations on the Internal Market’, COM (95) 503 final. 6 Johnson (n 3). 7 Ibid 55. 2 Ibid;

United Kingdom  687 The essence of the contingent disapproval argument was that the Member States were not ready for EMU, since they could not meet the convergence criteria, except by creative accounting that threw the whole enterprise into disrepute. This was exemplified by the letter signed by 155 German university professors, arguing that the time was not yet ripe for EMU,8 and it was exemplified thereafter by the difficulties created for the euro by the financial crisis in Greece, Ireland and Spain. It is, moreover, clear that EMU may well suit some states more than others. The outright rejection argument was more complex. It was in part political, in part symbolic, and in part economic. In political terms, some argued that a single currency was a major step towards a European superstate.9 A significant dimension of economic policy was shifted from the domestic to the EU arena. National governments no longer had the ultimate option of devaluation. Parliamentary debates on inflation, interest rates, and unemployment would be largely otiose, since power over such matters would be taken from national polities and given to the ECB. This would, so it was argued, exacerbate problems of democratic deficit within the EU, given that the demise of national parliamentary power over such matters would not be offset by any meaningful control through the European Parliament.10 In symbolic terms, a national currency was felt by some to be part of the very idea of nationhood. Thus, as Johnson noted, ‘monetary sovereignty is sometimes felt to be part of a national sovereignty, so that giving it up involves a loss of political independence, and ultimately political union’.11 In economic terms, it was contended that a single currency would lead to a variety of undesirable consequences. Prices would increase, since businesses would take advantage of the change from national currencies to the euro to raise prices before consumers were accustomed to the new money.12 A single currency could moreover create tensions, because economic conditions in Member States followed different cycles, hence removing the possibility of exchange rate fluctuation eliminated a significant mechanism for economic adjustment between states.

C.  The Economic Arguments, the Political Arguments and the United Kingdom The United Kingdom’s decision not to sign up to monetary union should be considered from a constitutional, an economic and a political perspective. From a constitutional perspective, there was nothing to prevent the United Kingdom from accepting the euro. The United Kingdom has no written constitution and thus by definition there is nothing in that regard that would have prevented the United Kingdom’s acceptance of the euro. There is, moreover, nothing in the United Kingdom’s unwritten constitution to dictate such an outcome. To the contrary, parliamentary sovereignty is the dominant constitutional principle in the United Kingdom. Consider then the following sequence of events. The EU introduced the Treaty provisions that laid the foundation for EMU in the Maastricht Treaty. If the United Kingdom had signalled its willingness to accept these Treaty revisions and had not pressed for an



8 Financial

Times, 9 February 1998. Redwood, The Single European Currency (Tecla, 1995) 11–12. 10 Ibid 19–20. 11 Johnson (n 3) 87. 12 Redwood (n 9) 22. 9 J

688  Paul Craig opt-out in relation to the euro,13 this outcome would then have been translated into national law through legislation that would have partaken of sovereignty. There would have been no constitutional prohibition to this outcome, nor any constitutional constraint to the acceptance of the authority of the European Central Bank. From an economic perspective, the United Kingdom broadly accepted many of the principal arguments voiced in favour of monetary union. This was particularly so in relation to the arguments framed in terms of enhanced economic growth, greater competitiveness and lower inflation that would flow from introduction of the euro. The concerns were more directly macroeconomic in nature, insofar as there were fears as to how a monetary union would function where there was considerable divergence between the respective economies of the Member States that signed up to the euro. There were doubts as to the ECB’s capacity to ‘hold the ring’ in a manner that was even-handed in this respect. There were doubts also as to how the euro would fare in the world currency markets, when it was valued against the dollar and the yuen. From a political perspective, UK acceptance of monetary union was felt by many to be problematic. This consideration proved decisive. This flowed in part from an emotional attachment to sterling as the national currency. The pound was perceived to be a symbol of national identity, to which we were long-wedded. Political opposition to the United Kingdom signing up to monetary union was also based on the increased power that the EU would thereby have over the United Kingdom. There were fears as to the centralised authority wielded by the ECB, and the diminution of control over domestic economic policy that would follow therefrom.

III.  The UK Opt-Out The United Kingdom negotiated an opt-out Protocol, which meant that it was not bound to move to the third stage of EMU even if it met the convergence criteria. It is covered by Protocol No 15, which is appended to the Lisbon Treaty. It is instructive to consider its detailed provisions, in order to discern the more precise implications of the United Kingdom’s decision in this respect.

A.  The Opt-Out and the Power to Opt-In Paragraph 1 stipulated that the United Kingdom was under no obligation to adopt the euro, and that such an obligation would only arise if the United Kingdom notified the Council of its intent to adopt the euro. Paragraph 9 then set out what would transpire if such a notice were to be given. It provided that the United Kingdom could notify the Council at any time of its intention to adopt the euro. If it did so, the United Kingdom had the right to adopt the euro, provided that it satisfied the necessary economic conditions. The Council, acting pursuant to Article 140(1) and (2) TFEU, decides whether the United Kingdom has met the necessary conditions. If it had done so, the Bank of England must pay up its subscribed capital, transfer to the ECB foreign reserve assets and contribute to its reserves on the same basis as the national central bank of a Member State whose derogation has been abrogated. The Council, acting pursuant to Article 140(3) TFEU, must take all other necessary decisions to enable the United Kingdom to adopt the euro. If the United Kingdom adopted the euro pursuant to the provisions of this Protocol, paragraphs 3 to 8, discussed below, cease to have effect.

13 Protocol

No 15 on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland.

United Kingdom  689

B.  The Consequences of Opting-Out: Monetary Policy – General Exclusion The United Kingdom duly gave the Council notice on 16 October 1996 and 30 October 1997 that it did not intend to adopt the euro, with the consequence that paragraphs 3 to 8 and paragraph 10 of the Protocol are applicable. The principal consequence, as expressed in paragraph 3 of the Protocol, is that the United Kingdom retains its powers in the field of monetary policy according to national law. The Protocol, paragraph 4, also lists a number of Treaty provisions that were not applicable to the United Kingdom. These provisions relate, in part, to particular aspects of monetary policy that do not bind the United Kingdom, because it has not adopted the euro. Thus, paragraph 4 states that the United Kingdom is not bound by Article 119(2) TFEU. Article 119(1) is the foundational provision dealing with economic and monetary policy. It provides that pursuant to Article 3 TEU, the activities of the Member States and the EU shall include the adoption of an economic policy. This policy is based on the close coordination of Member States’ economic policies, on the internal market and on the definition of common objectives. It is conducted in accordance with the principle of an open market economy with free competition. The United Kingdom remained bound by the foundational precept in Article 119(1). The opt-out was only applicable in relation to Article 119(2), which provides that the activities include a single currency, the euro, and the definition and conduct of a single monetary policy and exchange-rate policy. The primary objective of both policies is to maintain price stability and to support the general economic policies in the Union, in accordance with the principle of an open market economy with free competition. The principal effect of paragraph 4 of the Protocol was to render the Treaty provisions concerning monetary policy inapplicable because the United Kingdom did not adopt the euro. Thus, Article 127(1)–(5), Article 128, Articles 130–33 and Article 138 TFEU do not apply to the United Kingdom. It is instructive to note that Article 129 TFEU was not excluded in this respect. It is concerned with the institutional structure of decision-making for centralised banking. Article 129(1) provides that the ESCB shall be governed by the decision-making bodies of the European Central Bank, which shall be the Governing Council and the Executive Board. Article 129(2) stipulates that the Statute of the ESCB and of the ECB is laid down in a Protocol annexed to the Treaties. However, the retention of Article 129 TFEU was de facto and de jure diminished by paragraph 7 of Protocol No 15. It states that Articles 3, 4, 6, 7, 9.2, 10.1, 10.3, 11.2, 12.1, 14, 16, 18 to 20, 22, 23, 26, 27, 30 to 34 and 49 of the Protocol on the Statute of the European System of Central Banks and of the European Central Bank shall not apply to the United Kingdom. Paragraph 7 further provides that references in those articles to the Union or the Member States shall not include the United Kingdom, and references to national central banks or shareholders shall not include the Bank of England. These exclusions limited, but did not entirely exclude, the United Kingdom from the ESCB schema. Article 1 of the ESCB Statute remained applicable to the United Kingdom. This foundational provision established the ESCB regime, providing that it should consist of the European Central Bank and the national central banks. The Bank of England continued therefore to participate in the ESCB system. Article 2 of the ESCB Statute was also applicable to the United Kingdom. It specified that the ESCB’s primary objective was to maintain price stability. The ESCB should also, without prejudice to the objective of price stability, support the general economic policies in the EU with a view to contributing to the achievement of the objectives of the Union as laid down

690  Paul Craig in Article 3 TEU. The remainder of Article 2 of the ESCB statute echoed Article 119 TFEU, stating that the ESCB should act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 119 TFEU. The exclusions listed in paragraph 7 of Protocol 15 nonetheless radically curtailed the applicability of the ESCB statute, and the regime embodied therein, to the United Kingdom. This is readily apparent from a glance at the excluded provisions. These included Article 3 ESCB, which defines the ESCB’s central substantive tasks; Article 4 ESCB, which deals with the ESCB’s advisory functions; and Article 6 ESCB, which covers the ESCB’s role on the international plane. There were numerous other significant exclusions including Article 7 ESCB, which embodies the independence of the ECB and precludes it, as well as national central banks, from taking instructions from any Member State government, or any other institution. The United Kingdom was also ruled out from central decision-making within the ESCB. This is unsurprising, given the centrality and nature of the tasks accorded to the principal institutions. Article 12.1 ESCB states that the Governing Council shall adopt the guidelines and take the decisions necessary to ensure the performance of the tasks entrusted to the ESCB under these Treaties and this Statute. The Governing Council shall formulate the monetary policy of the Union including, as appropriate, decisions relating to intermediate monetary objectives, key interest rates and the supply of reserves in the ESCB, and shall establish the necessary guidelines for their implementation. The Executive Board implements monetary policy in accordance with the guidelines and decisions laid down by the Governing Council. In doing so, the Executive Board gives the necessary instructions to national central banks. Article 12.1 was deemed inapplicable to the United Kingdom by Protocol No 15, which also ensured that the United Kingdom was denied membership of these bodies, because Article 10.1 and Article 11.2 were also deemed inapplicable to the United Kingdom. Article 10.1 ESCB states that the Governing Council shall comprise the members of the Executive Board of the ECB and the governors of the national central banks of the Member States whose currency is the euro. This thereby effectively excluded the United Kingdom from the Governing Council, because the United Kingdom was also barred from the Executive Board. This followed from the fact that Article 11.2 ESCB, which established the mechanism for appointment to the Executive Board, was not applicable to the United Kingdom by virtue of paragraph 7 of Protocol No 15. A number of the other exclusions from the ESCB Statute carried through the logic of the United Kingdom exclusions from the primary Treaty articles. Thus, Article 14 ESCB echoes Article 131 TFEU, and renders inapplicable the Member State obligation to ensure that its national legislation, including the statutes of its national central bank, is compatible with the Treaties and the Statute of the ESCB and of the ECB. Article 16 ESCB reflects Article 128 TFEU, which is concerned with the issuance of euro bank notes, and consequently is of no relevance to the United Kingdom. A further example in the same vein is Article 34 ESCB, which mirrors the terrain governed by Article 132 TFEU. It empowers the ECB to make regulations and take decisions that are binding on Member States; it can in addition make recommendations and opinions. The United Kingdom is not bound by Article 132 TFEU, nor by Article 34 ESCB. Article 18 ESCB set out the options open to the ECB in fulfilling its remit, including operations in the financial markets by buying and selling outright, or under repurchase agreement, and by lending or borrowing claims and marketable instruments, whether in euro or other currencies. It can also conduct credit operations with credit institutions and other market participants, with lending based on adequate collateral. These provisions were not applicable to the United Kingdom, nor were the obligations concerning minimum reserves in Article 19 ESCB.

United Kingdom  691 There were a number of other provisions of the ESCB Statute that did not apply to the United Kingdom, such as Articles 22, 23, 26, 27, 30 to 34 and 49. The inapplicability of the preceding provisions of the TFEU and the ESCB Statute had consequences in terms of loss of voting rights. This corollary was logical, since it would otherwise mean that the United Kingdom would have ‘voice’ when it had no obligations with respect to the salient provisions. This logic was made explicit in Protocol No 15, paragraph 6. It provided that the United Kingdom’s voting rights shall be suspended in respect of acts of the Council referred to in the Articles listed in paragraph 4, and in the instances referred to in the first subparagraph of Article 139(4) TFEU. The United Kingdom also had no right to participate in the appointment of the President, the Vice-President and the other members of the Executive Board of the ECB under the second subparagraph of Article 283(2) of the said Treaty. The United Kingdom could, nonetheless, participate in the General Council of the ESCB as specified in Article 44 ESCB.

C.  The Consequences of Opting-Out: Monetary Policy – Provisions for Member States with a Derogation The consequences concerning the UK opt-out from monetary policy did, however, also take account of the continued application to the United Kingdom of the Treaty provisions concerning Member States with a derogation. These remained applicable to the United Kingdom, and they contained important obligations in relation to monetary policy. A word by way of explanation is necessary to avoid confusion. Article 139 TFEU states that Member States in respect of which the Council has not decided that they fulfil the necessary conditions for the adoption of the euro shall be referred to as ‘Member States with a derogation’. Article 139 would seem to be addressed to Member States that have not met the convergence criteria and cannot therefore adopt the euro. This would not include the United Kingdom, which chose not to adopt the euro for other reasons and secured an opt-out to allow it to retain sterling. This view seems confirmed in part by Protocol (No 15) paragraph 5, which states, inter alia, that Articles 134(4) and 142 TFEU shall apply to the United Kingdom as if it had a derogation. Protocol No 15 paragraph 5 however also provides that ‘Articles 143 and 144 TFEU shall continue to apply to the United Kingdom.’ Articles 143–44 TFEU are applicable to Member States with a derogation, and if these provisions were to continue to apply to the United Kingdom, the implication would have been that the United Kingdom was regarded as a state with a derogation. This confusion was regrettable. The subsequent discussion is premised on the assumption that Articles 141–44 TFEU remained applicable to the United Kingdom, notwithstanding the opt-out. This conclusion seems warranted both from the wording of Protocol (No 15) paragraph 5, and from the fact that Articles 141–44 TFEU are not in the list of Treaty provisions deemed inapplicable to the United Kingdom by operation of Protocol (No 15) paragraph 4. Article 141(1) TFEU provides that as long as there are Member States with a derogation, the General Council of the ECB referred to in Article 44 ESCB shall constitute a third decision-making body of the European Central Bank. Article 142(2) stipulates that as long as there are Member States with a derogation, the ECB shall, as regards those Member States: strengthen cooperation between the national central banks; strengthen the coordination of the monetary policies of the Member States, with the aim of ensuring price stability; monitor the functioning of the exchange-rate mechanism; and hold consultations concerning issues falling within the competence of the national central banks and affecting the stability of financial institutions and markets.

692  Paul Craig Article 142 TFEU focuses on the obligations of the Member States with a derogation, ­providing that each such Member State shall treat its exchange-rate policy as a matter of common interest. In so doing, Member States shall take account of the experience acquired in cooperation within the framework of the exchange-rate mechanism. Article 143 deals with the situation where a Member State with a derogation is in difficulties, or is seriously threatened with difficulties as regards its balance of payments. This may be the result of disequilibrium in its balance of payments, or as a result of the type of currency at its disposal. Article 143 is premised on the assumption that such difficulties are liable in particular to jeopardise the functioning of the internal market, or the implementation of the common commercial policy. The Commission is then charged with investigating the matter, and making recommendations to the relevant state. There is the possibility of granting assistance to the Member State, with the Council making the ultimate decision. If the mutual assistance is not given, or is ineffective, then the Member State may be authorised to take protective measures. Article 144 TFEU also makes provision for a Member State with a derogation to take protective measures if faced with a sudden crisis in its balance of payments. The preceding provisions are relevant in order to gain a balanced picture concerning the effect of an opt-out from the Treaty provisions on monetary union. They reveal the continuing interaction as regards monetary policy between the EU and Member States that do not subscribe to the euro. This is readily apparent from Articles 141–42 TFEU, which concern coordination between the EU and such Member States over their respective monetary policies in order to engender price stability. These Treaty provisions reveal also the proximate connection between monetary policy and economic policy. This is evidenced by Articles 143–44 TFEU, which show the ongoing EU interest in the balance of payments of Member States that do not subscribe to the euro, since imbalance in this respect could endanger the internal market.

D.  The Consequences of Opting-Out: Economic Policy The UK opt-out was primarily concerned with EU monetary policy, and the fact that the United Kingdom chose not to adopt the euro. Monetary policy and economic policy are not, however, hermetically sealed areas. It is therefore instructive to consider the extent to which the United Kingdom remained bound by the general precepts of EU economic policy. The reality is that the United Kingdom remained bound by much of the detailed Treaty provision concerning EU economic policy in Articles 120–26 TFEU. This was so with respect to the imperative in Article 120 TFEU: Member States shall conduct their economic policies with a view to contributing to the achievement of the objectives of the Union, as defined in Article 3 TEU, and in the context of the broad guidelines referred to in Article 121(2). The Member States and the Union shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 119. Article 121(1) TFEU, which contained the injunction that Member States must regard their economic policies as a matter of common concern and coordinate them in the Council, in accordance with the provisions of Article 120, remained applicable to the United Kingdom. This was equally true for the remainder of Article 121, which specified the regime of broad economic policy guidelines, and the reporting obligations that attached thereto. This is, however, subject to a qualification. Thus, Article 121(2) TFEU as regards the adoption of the parts of the broad economic policy guidelines that concern the euro area generally were not applicable to the United Kingdom. Reference to the Union or the Member States in this provision did not include the United Kingdom, and reference to national central banks did not include the Bank of England.

United Kingdom  693 The legal architecture of EU economic policy in Articles 122–25 TFEU continued to apply to the United Kingdom. This included the prohibition in Article 123 on the availability of overdraft facilities to governmental entities, and the ban in Article 124 on privileged access being accorded to governments with respect to access to financial institutions. Article 125, which precluded government bail-outs, inter alia, by other governments, also continued to bind the United Kingdom. The principal exception to the application of EU economic policy to the United Kingdom was in relation to Article 126 TFEU, which dealt with the excessive deficit procedure. However, even in this context the effect of the opt-out was more limited than might initially have been imagined. Paragraph 4 of the Protocol provided that Articles 126(1), (9) and (11) should not apply to the United Kingdom. Article 126(1) contained the basic principle that Member States ‘shall avoid excessive deficits’. While this injunction did not apply to the United Kingdom, paragraph 5 of the Protocol nonetheless stipulated that the ‘United Kingdom shall endeavour to avoid an excessive government deficit’. This obligation was formally binding on the United Kingdom. The only difference between Article 126(1) and paragraph 5 is that the latter is qualified by the addition of the verb ‘endeavour’. The degree of difference between the two formulations can moreover be questioned, since, in reality, Article 126(1), which applied to the other Member States, was treated as imposing an obligation of best endeavour, rather than strict liability for failing to avoid a deficit. The very fact that the United Kingdom remained bound by a qualified version of Article 126(1) then serves to explain the fact that much of the subsequent provision within that Article remained applicable to the United Kingdom. This included the test for excessive deficit in Article 126(2), and the machinery for Commission investigation and reporting to the Council in Article 126(3)–(8) in the event that a Member State was perceived to be running an excessive deficit. The Protocol precludes however the application of Article 126(9) and (11), thereby foreclosing the application to the United Kingdom of the more peremptory methods of enforcement that could, in theory at least, be imposed on Member States that failed to remedy their budgetary deficits. The continued applicability of much of EU policy concerning economic union is reaffirmed by the fact that much of the regulatory architecture introduced in the wake of the financial crisis was applicable to the United Kingdom. Thus, while some of these regulations related only to Member States that subscribed to the euro,14 the majority of the Six Pack regulations were applicable to all Member States.15

14 Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November 2011 on the effective enforcement of budgetary surveillance in the euro area [2011] OJ L306/1; Regulation (EU) 472/2013 of the European Parliament and of the Council of 21 May 2013 on the strengthening of economic and budgetary surveillance of Member States experiencing or threatened with serious difficulties with respect to their financial stability in the euro area [2013] OJ L140/1; Regulation (EU) 473/2013 of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area [2013] OJ L140/11. 15 Regulation (EU) No 1175/2011 of the European Parliament and of the Council of 16 November 2011 amending Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies [2011] OJ L306/12; Council Regulation (EU) No 1177/2011 of 8 November 2011 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure [2011] OJ L306/33; Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States [2011] OJ L306/41; Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances [2011] OJ L306/25; Regulation (EU) No 1174/2011 of the European Parliament and of the Council of 16 November 2011 on enforcement measures to correct macroeconomic imbalances in the euro area [2011] OJ L306/8; ‘Results of in-depth reviews under Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances’, COM (2013) 199 final.

694  Paul Craig

IV.  The Opt-Out and UK Policy There was no rethinking of the United Kingdom’s decision to retain its currency. United Kingdom politics remained firmly wedded to sterling for the reasons articulated above. These sentiments were reinforced by the EU financial crisis, with the consequential negative effects on the euro. This was for many in the United Kingdom further proof of the wisdom of retaining sterling. This picture would nonetheless be incomplete if we were to stop here. This is so for three reasons.

A.  Proximate Connection between Economic and Monetary Union The EU financial crisis revealed the proximate connection between EU economic and monetary union. It was indeed the asymmetry in the Treaty provisions between these two areas, and more especially the relative weakness of the former as compared to the latter, which precipitated the crisis and hampered initial efforts to deal with it. It was for this very reason that the EU rapidly enacted the raft of measures in the Six Pack and Two Pack, in order to strengthen EU oversight of national fiscal policy. This is doubly relevant for the present analysis. In factual terms, the United Kingdom economy was hit by the financial crisis, directly and indirectly, notwithstanding that it had not adopted the euro. In legal terms, the United Kingdom was bound by many of the measures designed to increase EU oversight of balance of payments at national level.

B.  Regulation of the Eurozone Impacting on Non-Euro Member States The United Kingdom also felt and voiced concerns about the fact that regulation of the eurozone impacted on non-euro Member States. Space precludes discussion of the possible responses to these concerns, which can be found elsewhere.16 It is nonetheless important for the present analysis to be cognisant of this issue. These concerns were recognised in the European Council on numerous occasions. It emphasised that the process towards deeper economic and monetary union should be characterised by ‘transparency towards Member States which do not use the single currency and by respect for the integrity of the Single Market’.17 It was therefore necessary to ‘ensure a level playing field’18 between those Member States which took part in the Single Supervisory Mechanism (SSM) and those which did not, and this could require modification of the voting modalities used by the European Banking Authority (EBA) to ensure non-discriminatory and effective decision-making within the Single Market.19 This was achieved. The concerns were also apparent in evidence submitted to the UK Competence Review. While the Competence Review was in general positive about the division of competence between the EU and the United Kingdom, there were nonetheless concerns in some reports about the impact

16 P Craig and Markakis, ‘The Euro Area, its Regulation and Impact on Non-Euro Member States’, in P Koutakos and J Snell (eds), The Law of the EU’s Internal Market (Elgar, 2017) 289–316. 17 European Council, 18–19 October 2012 [5]. 18 Ibid [8]. 19 Ibid [8]. See also, European Council, 13–14 December 2012 [4].

United Kingdom  695 of eurozone regulation on non-euro states. This is evident in the report devoted to economic and monetary union,20 and in that on financial services.21 The concerns were voiced once again in the prime minister’s Chatham House speech on 10 November 2015,22 which formed the basis for the letter sent to Donald Tusk, the President of the European Council, in which the prime minister articulated the issues on which the United Kingdom sought change in the relationship between the United Kingdom and the EU.23 The first of the four issues for renegotiation concerned economic governance, with the prime minister stating that while the United Kingdom supported measures taken to ensure the viability of the euro, these should respect the integrity of the single market and not discriminate against states that did not subscribe to the euro. It is however important to press beyond statements of this generality and inquire as to the more specific concerns about the impact on non-euro Member States. It is necessary to disaggregate a number of such concerns, and equally important to test their empirical foundations.

i. Caucusing A principal concern is that the Council voting rules post-2014 gave the eurozone Member States a qualified majority,24 such that they could devise provisions relating to the internal market that suited their needs and secured the requisite majority in the Council. There would, on this view, be an increased danger of ‘caucusing’, whereby the eurozone states would form a cohesive group that could drive EU legislation, suiting the needs of these states.25 The Competence Review on Financial Services captured the point in the following way:26 The risks to non-euro area Member States of greater integration that fails to respect the rights and interests of non-euro area Member States include: greater convergence of political and economic interests among euro area Member States that results in EU-wide regulation that is appropriate for the euro area but is not suitable for all Member States; the practice of caucusing and the development of a common euro area position on financial services issues which are at odds with a single market that is open internationally, dynamic, innovative and globally competitive; the fragmentation of the Single Market with barriers erected between its euro area and non-euro area constituents; the undermining of economic benefits associated with liberalised capital markets; and the marginalisation of non-euro area interests.

It is however important to be mindful as to the empirical reality of this danger. The preceding concern was predicated on the assumption that the euro Member States have an identity of interest, which they will advance through a caucus to the detriment of non-euro Member States. This does not represent reality. The members of the eurozone do not share a simple identity of interest. The policy that emerges concerning the eurozone is often the result of hard-fought battles, reflective of cross-cutting interests of euro states in relation to economic issues, there being even

20 Review of the Balance of Competence between the United Kingdom and the European Union, Economic and Monetary Union (2014), [5.31]–[5.52]. 21 Review of the Balance of Competence between the United Kingdom and the European Union, The Single Market: Financial Services and the Free Movement of Capital (2014), [5.26]–[5.30], [5.33], [5.35]. 22 www.gov.uk/government/speeches/prime-ministers-speech-on-europe. 23 Prime Minister, ‘A New Settlement for the United Kingdom in a Reformed European Union’, 10 November 2015. 24 Art 16(4) TEU, subject to the qualification for the transitional period in Art 16(5) TEU. 25 Competence Review, Economic and Monetary Union (n 19) [5.31]; Competence Review, Financial Services (n 20) [5.29], [5.41]; Rt Hon G Osborne, Speech at Open Europe Conference (15 January 2014), www.gov.uk/government/ speeches/extracts-from-the-chancellors-speech-on-europe. 26 Competence Review, Financial Services (n 20) [5.29].

696  Paul Craig less reason as to why they should share a common interest on issues of social policy, employment or immigration. This explains the scepticism as to the risk of caucusing expressed by some that submitted evidence to the competence review.27 It led the Competence Review on Financial Services to conclude that there was no ‘discernible evidence to date that euro area Member States are collectively caucusing on Single Market rules’, while noting that ‘if the interests of these Member States do start to converge, then it is likely that they will coordinate their positions on certain issues’.28

ii. Discrimination There was unease that the commonality of interest between the eurozone states could lead to discrimination in relation to internal market issues that affected non-euro states. This risk was said to be exemplified by the ECB location policy, which stipulated that euro-denominated ­financial instruments should be cleared only by a clearing house physically located in a eurozone Member State, thereby ‘creating a single market within the Single Market’.29 We should be alert to discrimination against non-euro states, but we should also consider carefully whether such discrimination exists. The General Court annulled the policy on the ground that the ECB lacked legal competence to adopt it.30 It did not therefore have to deal directly with the discrimination argument. This is not the place to undertake any detailed exegesis on the complex issues, economic and factual, which underpin discrimination arguments of this kind. Suffice it to say for the present that the claimant would have to show, in accord with accepted legal principles, that there really was discrimination, direct or indirect, against non-eurozone states in relation to a single market issue that affected all states. If such discrimination could be proven it would then be open to the defendant in cases of indirect discrimination to show that there was objective justification for the policy.

iii.  EU Decision-Making A third concern was that the financial crisis impacted on the EU decision-making structure. This led to an increase in the power of the Eurogroup and the ECB, and to tensions between the former and Ecofin.31 There is undoubtedly force in this concern, which is borne out by the regulatory power, de facto and de jure, exercised by the Eurogroup, Euro Summit and the ECB described above. We should nonetheless be cautious concerning allegations that measures to combat the ­financial crisis made illegitimate use of Treaty articles. Thus, it was argued by some commentators that it was illegitimate to use Article 114 TFEU as the basis for the Single Resolution Mechanism (SRM), because the subject matter was only of immediate concern to the euro states, and not all Member States.32 This does not withstand examination. The trigger for Article 114 is the need for a measure for the establishment and functioning of the internal market. While there have been justified concerns over the liberal use of this Article, its application is not dependent on internal market impact that must be felt equally across all Member States, nor would this make sense,

27 Competence

Review, Economic and Monetary Union (n 19) [5.42]–[5.43]. Review, Financial Services (n 20) [5.33]. 29 Competence Review, Financial Services (n 20) [5.31]. 30 United Kingdom and Northern Ireland v European Central Bank, T-496/11, EU:T:2015:133. 31 Competence Review, Economic and Monetary Union (n 19) [5.44]. 32 Competence Review, Economic and Monetary Union (n 19) [5.51]–[5.52], evidence tendered by Open Europe. 28 Competence

United Kingdom  697 given the objective of Article 114. There was, moreover, ample evidence that the issues addressed by the SRM were impeding the functioning of the internal banking market for the euro states, and that the turmoil thus created could impact more broadly on the functioning of the internal market that could affect non-euro states.

C.  Brexit and the Relative Value of Currencies The final factor to be aware of when considering the United Kingdom’s approach to EU monetary policy is the relative value of the euro and sterling. The point made here is both simple and paradoxical. The United Kingdom declined to adopt the euro for a plethora of reasons, including its belief that the euro would be weak in value as compared to sterling. The reality is that the euro has been reasonably resilient, even in the dark days of the financial crisis, buoyed by assurances from the ECB President that the euro would not be allowed to fail. The reality is also that Brexit has revealed the relative weakness of sterling in relation to the euro, such that the two currencies now trade at close to parity. This may be a temporary phenomenon, which will change in a postBrexit world. Whether this is so will depend in large part on the nature of the United Kingdom’s departure from the EU.

V. Conclusion Predicting the future is perilous at the best of times, even more so in the current political climate, when a week is a very long time in politics. It is even more difficult to venture thoughts about the medium term. It is not impossible that the United Kingdom, having left the EU, may change its mind at some future date and seek to re-enter. This may seem fanciful, but not quite so much, given the voting demographics, wherein a disproportionate number of older people favour exiting the EU, while a disproportionate number of younger people take the opposite view. It is, moreover, necessary to factor in the effect of an economic downturn on voter preferences. If such an eventuality were to occur, the issue would then arise as to whether the United Kingdom would join the euro, or seek to negotiate another opt-out. An array of political forces would shape such negotiations and the outcome thereof.

698

INDEX accession to EU, authorisations for, 7–9 see also individual Member States Alogoskoufi, Georgios, 247 Anastasiades, Nicos, 370 Article 136 TFEU Amendment see European Stability Mechanism Austria, 523–36 characteristics of system and constitutional culture, 523–26 foundations of EMU membership, 526–30 obstacles to EMU integration, 530–34 rules and practice on implementing EMU related law, 534–36 resulting relationship between EMU related law and national law, 536 accession to EU, 526–27 adoption of euro, 527 Austrian Fiscal Council, 535 Austrian Stability Pact, 24, 527–28, 534–35 Constitutional Court: and principle of budgetary sovereignty, 534 referrals to CJEU, 5, 533 role and powers, 525 rulings and judgments, 528 on implementation of TSCG, 24–25, 530, 531–32 on participation in ESM, 27, 29, 530–31, 532 and ultra vires doctrine, 533 and EMU reform proposals, 532, 533–34 federal system, 523–24 implementation of TSCG, 24–25, 528, 530, 531–32 national parliament (National Council, Federal Council), 524, 528–30, 535–36 Österreichische Nationalbank, 527 participation in ESM, 27, 29, 528–31, 532 popular initiatives, 527 protection of national identity, 5 Banking Union, 47 Banking Union, completion of, 66 NATIONAL PERSPECTIVES: Bulgaria, 322; Croatia, 322–23; Cyprus, 375; Czech Republic, 121; Estonia, 189–90; Germany, 168–69; Hungary, 450; Italy, 352–53; Latvia, 395; Luxembourg, 426; Malta, 471–72; Netherlands, 516–17; Poland, 549; Slovenia, 642; Spain, 272n103; Sweden, 680

see also European Deposit Insurance Scheme; Single Resolution Fund Banking Union, joining of: NATIONAL PERSPECTIVES: Bulgaria, 80, 85; Czech Republic, 116, 121; Denmark, 137; Hungary, 450; Poland, 548; Sweden, 681 Barroso, José Manuel, 247, 441 Baudet, Thierry, 492, 505n76 Belgium, 24, 25, 421 Bulgaria, 75–95 characteristics of system and constitutional culture, 76–78 foundations of EMU membership, 79–83 obstacles to EMU integration, 83–90 rules and practice on implementing EMU related law, 91–94 resulting relationship between EMU related law and national law, 94–95 acts of parliament, 92 adoption of euro, 77, 80, 82–83, 85, 95 attitudes to EU, 77–78, 79–80 Bulgarian National Bank, 77, 79, 82, 82–83, 83, 85 Constitutional Court, 77, 84, 87–88, 89, 92 constitutional identity, 89 and EMU reform proposals, 90, 322 EU integration clause, 80 government (Council of Ministers), 91, 93, 94 human rights protection, 79 joining Banking Union, 80, 85 joining ERM II, 82, 316 monetary board, 85 Normative Acts Act, 88 parliament (National Assembly and Grand National Assembly), 79, 86–87, 88–89, 90, 91, 92, 93–94 parliamentary opposition, 77, 84 standing parliamentary committee, 94 president, 77, 84 prime minister, 77 ratification of TSCG, 81, 82 taxation, 85, 86 welfare state, 85, 92 Cameron, David, 695 Capital Markets Union, 395, 471–72 Cavaco Silva, Aníbal, 561 Centeno, Mário, 577

700

Index

Charter of Fundamental Rights of the European Union (EU Charter, CFREU), 3–4, 5, 44–45 NATIONAL PERSPECTIVES: Czech Republic, 99; Denmark, 126, 127; Greece, 233; Luxembourg, 428; Sweden, 674 Christofias, Demetris, 370 CJEU see Court of Justice of the European Union Cohesion Fund, 58 see also European Funds, common provisions on Commission Structural Reform Support Service, 57–58 constitutional identity doctrine and reviews: MEMBER STATES: Belgium, 25; Croatia, 317–18, 319–20, 321; France, 13, 290, 301; Germany, 13, 22–23, 26, 155–57, 158; Greece, 239–40; Hungary, 439, 445; Latvia, 391–94; Netherlands, 504; Portugal, 564; Romania, 596–97; Slovakia, 619 see also counter-limits doctrine Constitutional Treaty see Treaty establishing a Constitution for Europe coronation theory, 553 Costa, Carlos, 573 counter-limits doctrine: Italy, 344, 348–49 Spain, 258 see also constitutional identity doctrine and reviews; human rights protection; ultra vires doctrine and reviews Court of Justice of the European Union (CJEU): indirect dialogue in norm creation, 14–15 on primacy of EU law, 2–6 principle of harmonious interpretation, 201 role in EMU, 51 PRELIMINARY RULINGS: Austria, 5, 533; Cyprus, 20–21, 373–74; Czech Republic, 100–101, 103–4, 112n88, 114; Denmark, 126n8, 127–28; Estonia, 193; France, 290; Germany: FotoFrost, 213–14 OMT (Gauweiler, Weiss), 17, 35–36, 52, 154–55 PSPP, 17–20, 29–30, 155, 160–61; Greece, 249; Hungary, 445; Ireland: Pringle v Ireland, 15–16, 27, 52, 198–99, 207–8, 220, 294; Latvia, 381–82, 390–91; Lithuania, 407; Luxembourg, 425–26; Portugal, 44–45; Romania, 44–45; Slovenia, 638–39; Spain, 257–58; Sweden, 681 OTHER JUDGMENTS: ESMA case, 49; on excess deficits, 39, 291; on funding of Single Resolution Fund, 63; on primacy of EU law, 494; on rebus sic stantibus principle, 103–4 Croatia, 305–26 characteristics of system and constitutional culture, 307–10 foundations of EMU membership, 310–16 obstacles to EMU integration, 316–23 rules and practice on implementing EMU related law, 323–25

resulting relationship between EMU related law and national law, 325–26 accession to EU, 306, 310–11, 312 adoption of euro, 306–7, 310–11, 313–16, 315, 323 Constitutional Court (CC): constitutional identity doctrine, 317–18, 319–20, 321 constitutional reviews, 314, 317 and EMU reform proposals, 321–22 and limits on EU membership, 318 nomination of justices, 309 roles and powers, 309–10, 317–18 and sovereignty clause, 320–21 status of, 308, 309 Croatian National Bank (HNB), 314–15 and EMU reform proposals, 321–23 and excess deficit procedure, 313–14 Fiscal Policy Committee, 322 human rights protection, 307, 308n21, 310, 319 joining ERM II, 315–16, 323 judicial culture, 308–9 parliament, 308, 309, 316, 323, 324 European Affairs Committee, 324–25 president, 308 ratification of: ESM Treaty, 313 TSCG, 306, 313 Supreme Court, 308 Cyprus, 361–76 characteristics of system and constitutional culture, 361–65 foundations of EMU membership, 366–68 obstacles to EMU integration, 368–75 rules and practice on implementing EMU related law, 375 resulting relationship between EMU related law and national law, 375–76 accession to EU, 361, 368–69 adoption of euro, 361, 366 budgetary process, 366–67, 375 Council of Ministers, 362 and EMU reform proposals, 374–75 financial assistance, 369, 370–71 crisis measures and challenges to, 20–21, 369–70, 371–74, 376 Fiscal Council, 367 human rights protection, 371, 372, 376 parliament, 364, 375 president and vice president, 362, 364 ratification of: ESM Treaty, 367, 369 TSCG, 367–68 Supreme Court: doctrine of necessity, 363–64, 365, 368, 373, 376 establishment of, 362–63 rulings and judgments, 369, 371–73

Index  701 Czech Republic, 97–122 characteristics of system and constitutional culture, 97–101 foundations of EMU membership, 101–10 obstacles to EMU integration, 111–16 rules and practice on implementing EMU related law, 116–21 resulting relationship between EMU related law and national law, 121–22 adoption of euro, 102–5 Constitutional Court: appointment of judges, 100 attitude to EU law, 621 constitutionality reviews, 112–14 material core doctrine, 111–12, 610n15 rulings and judgments, 101–2 on central bank independence, 107–8 on fiscal measures, 108–11, 120–21 on Lisbon Treaty, 99, 618 ultra vires doctrine and reviews, 12n41, 14–15, 100–101, 112–13, 114 Czech National Bank, 100, 107–8, 116 and EMU reform proposals, 115–16 and ERM II, 102–3 and Euro-Plus Pact, 121 excessive deficit procedure (EDP), 116–17 fiscal and budgetary rules, 118–21 human rights protection, 111 joining Banking Union, 116, 121 parliament (Chamber of Deputies, Senate), 99, 110, 115, 117–18, 119 presidential powers, 98–100, 107–8 ratification of: ESM Treaty, 99, 105 TSCG, 105–7 Dahl, Børge, 127 de Gaulle, Charles, 284 Denmark, 125–41 characteristics of system and constitutional culture, 125–28 foundations of EMU membership, 128–30 obstacles to EMU integration, 131–40 rules and practice on implementing EMU related law, 140–41 resulting relationship between EMU related law and national law, 141 accession to European Community, 129–30 adoption of euro, 133–34, 135–36 bilateral loan to Ireland, 205 Danmarks Nationalbank, 134–35 and EMU reform proposals, 138 human rights protection, 127, 139–40 joining Banking Union, 137 monarch, 128n20 opt-outs, 131–36, 543

parliament (Folketinget), 126, 128n20, 217 European Affairs Committee, 140–41 ratification of TSCG, 136–37 social rights and welfare, 138–40 Supreme Court (SCDK), 12n41, 14–15, 126–28, 129, 139–40 ultra vires reviews, 14–15 Draghi, Mario, 639 Dzurinda, Mikuláš, 607, 615 ECB see European Central Bank ECHR see European Convention on Human Rights Economic and Financial Committee, 50–51 Economic and Monetary Union (EMU): authorisations for membership, 7–9 introduction and overview, 33–34 measures and competencies: economic and fiscal policy, 36–52 financial assistance, 41–45 fiscal discipline, 37–41 institutional architecture, 47–51 market regulation, 45–47 overview, 36–37 monetary policy, 34–36 obstacles to further integration, 9–15 see also EMU reform proposals EDP excessive deficit procedure (EDP): NATIONAL PERSPECTIVES: Croatia, 313–14; Czech Republic, 116–17; France, 39; Germany, 39; Greece, 246–47; Italy, 345–46; Slovenia, 636; Spain, 265–68, 269–70 EMU reform proposals, 52–67, 138 NATIONAL PERSPECTIVES: Austria, 532, 533–34; Bulgaria, 90, 322; Croatia, 321–23; Cyprus, 374–75; Czech Republic, 115–16; Denmark, 138; Estonia, 187–92; Finland, 665–66; France, 295–99; Germany, 162–69; Greece, 245–46; Hungary, 447–51; Ireland, 220–21; Italy, 352– 54; Latvia, 393–94, 396; Lithuania, 412–14; Luxembourg, 426; Malta, 471–73; Netherlands, 506, 508–17, 519; Portugal, 572–73; Slovakia, 620–21; Slovenia, 641–43; Spain, 270–73; Sweden, 680–81 see also individually Banking Union, completion of; European Funds, common provisions on; European Minister of Economy and Finance; European Monetary Fund; eurozone fiscal capacity; fiscal responsibility and medium-term budgetary orientation, strengthening of; macroeconomic stabilisation mechanism ERM II see Exchange Rate Mechanism II ESM see European Stability Mechanism Estonia, 177–93 characteristics of system, 177–81 foundations of EMU membership, 181–84 obstacles to EMU integration, 184–92

702

Index

rules and practice on implementing EMU related law, 192–93 resulting relationship between EMU related law and national law, 193 adoption of euro, 183 Eesti Pank, 183–85 and EMU reform proposals, 187–92 human rights protection, 186 implementation of TSCG, 24 joining ERM II, 183–84 parliament (Riigikogu), 181, 182–83, 185–86, 192–93 participation in ESM, 28, 29, 181–82, 185–87 Supreme Court, 179–80, 193 approach to ESM, 28, 29, 185–87, 414 Euro Summit, 50 Eurogroup, 49, 50–51, 66, 666 financial assistance: Cyprus, 370, 371, 373–74 Greece, 232, 233 Europe 2020 Strategy, 340–41, 442 European Arrest Warrant, 621n78 NATIONAL PERSPECTIVES: Cyprus, 369; Czech Republic, 102, 114; France, 288; Germany, 153; Netherlands, 507–8; Poland, 548; Slovakia, 621n78 European Banking Authority (EBA), 49, 694 European Central Bank (ECB), 34–36, 43–44, 46–51, 66, 103, 390–91 location policy, 696 referral of Slovenia to CJEU, 639 ultra vires challenges, 12, 13, 17–20, 154–55, 159–61 NATIONAL PERSPECTIVES: Czech Republic, 100, 116; France, 298–99; Germany, 150 (see also ultra vires challenges above); Greece, 370–71; Hungary, 442, 444–45; Ireland, 199, 206; Netherlands, 492; Poland, 549; United Kingdom, 688, 689–91, 696 see also Outright Monetary Transaction (OMT) Programme; Public Sector Purchasing Programme (PSPP); Troika European Commission: EMU reform initiatives see under Economic and Monetary Union fundamental rights protection, 21 monitoring roles, 36, 38–41, 48, 50, 103 technical support, 57–58 see also Troika European Convention on Human Rights (ECHR): NATIONAL PERSPECTIVES: Croatia, 310; Cyprus, 372, 373; Greece, 237, 238; Hungary, 435; Lithuania, 401n8; Luxembourg, 421, 428; Malta, 462, 465; Netherlands, 491; Spain, 257; Sweden, 672, 674, 677 see also human rights protection European Council: and European Central Bank, 36, 46 and European Monetary Fund, 53–54, 55, 56

and further transfer of powers, 11–12 and Italian emergency break mechanism, 354 monitoring and compliance roles, 36–41, 49–50, 51, 57 European Court of Human Rights (ECtHR), 127, 238, 257, 401n8, 438 European Deposit Insurance Scheme (EDIS): NATIONAL PERSPECTIVES: Germany, 168; Hungary, 450; Latvia, 395; Netherlands, 516; Slovenia, 642 see also Banking Union European Financial Stability Facility (EFSF): creation of, 42, 231, 424 financial assistance, 48 Greece, 233, 485, 625 Ireland, 204–5 Portugal, 571–72 link to OMT, 43–44 litigation on, 26, 159 and no bail-out clause, 443 NATIONAL PERSPECTIVES: Cyprus, 369; Finland, 661–62; Germany, 170–71; Greece, 233; Hungary, 442; Ireland, 204–5; Lithuania, 406; Luxembourg, 424; Malta, 470; Netherlands, 492, 497, 534; Poland, 548–49; Portugal, 571–72; Slovakia, 617, 625–26; Spain, 278–79 European Financial Stability Mechanism (EFSM): creation of, 25–26, 42 financial assistance: Ireland, 204–5 Portugal, 571–72 NATIONAL PERSPECTIVES: Czech Republic, 117; Finland, 661; Hungary, 442; Ireland, 204–5; Luxembourg, 424; Portugal, 571–72; Spain, 278–79 European Fiscal Board, 56–57 European Fund for Regional Development, 58 European Fund for Strategic Investments, 58, 62 European Funds, common provisions on, 58–59 NATIONAL PERSPECTIVES: Bulgaria, 90; Croatia, 323; Czech Republic, 116; Estonia, 188; France, 295–96; Germany, 164–65; Hungary, 448; Ireland, 220; Italy, 352; Lithuania, 413; Netherlands, 510–11; Slovakia, 620–21; Slovenia, 642 European Globalisation Adjustment Fund, 61–62 European Insurance and Occupational Pensions Authority (EIOPA), 49 European Investment Bank (EIB), 58, 64 European Investment Protection Scheme (EIPS), 60–61, 65 NATIONAL PERSPECTIVES: Austria, 534; Czech Republic, 115–16; Estonia, 190–91; Germany, 166; Hungary, 450; Netherlands, 514–15; Spain, 272n103 see also macroeconomic stabilisation mechanism

Index  703 European Minister of Economy and Finance (EMEF), 55, 66 NATIONAL PERSPECTIVES: Bulgaria, 90; Cyprus, 374–75; Czech Republic, 115, 116; Denmark, 138; Estonia, 191; Finland, 666; France, 298; Germany, 167–68; Greece, 246; Hungary, 450; Ireland, 221; Italy, 353; Latvia, 395; Luxembourg, 426; Malta, 472–73; Netherlands, 506, 515, 534; Portugal, 572–73; Slovenia, 642; Spain, 271; Sweden, 681 European Monetary Fund (EMF), 53–56, 58, 63–64, 65, 66 NATIONAL PERSPECTIVES: Austria, 533; Bulgaria, 90, 322; Croatia, 322–23; Czech Republic, 115, 115–16; Estonia, 189–90; France, 296–97, 298; Germany, 165–66, 168–69; Greece, 245–46; Hungary, 450; Ireland, 220–21; Italy, 352–53; Latvia, 394; Lithuania, 412–13; Luxembourg, 426; Malta, 472; Netherlands, 492, 511–14, 516–17, 519; Portugal, 573; Slovakia, 621; Slovenia, 642; Spain, 271; Sweden, 680 see also Banking Union, completion of European Parliament, role in EMU, 51 European Rainy Day Fund, 61, 65 NATIONAL PERSPECTIVES: Czech Republic, 115–16; Estonia, 191; Germany, 167; Hungary, 449, 450; Spain, 273n113 see also macroeconomic stabilisation mechanism European Securities and Markets Authority (ESMA), 49 European Semester, 37, 38, 50, 56 NATIONAL PERSPECTIVES: Czech Republic, 118; Denmark, 137; Hungary, 448; Italy, 337–38; Netherlands, 492; Slovakia, 620–21; Spain, 277–78 European Social Fund, 58 see also European Funds, common provisions on European Stability Mechanism (ESM): financial assistance and memoranda of understanding, 43, 44, 45 Cyprus, 369, 370–74 Greece, 20–21, 227, 231–34, 235–39, 244, 249, 250 Spain, 269, 273, 278–79 Governing Board and voting rights, 43, 54–55 legal controversies and litigation on, 15–16, 20–23, 25–30, 158 Pringle v Ireland, 15–16, 27, 198–99, 207–8, 220, 294 link to OMT, 43–44 and no bail-out clause, 15, 443 reform proposals see European Monetary Fund role of national courts, 7 signing of Treaty, 260 NATIONAL PERSPECTIVES: Austria, 27, 29, 528–31, 532; Croatia, 313; Cyprus, 367, 369 (see also above); Czech Republic, 99, 105; Estonia, 28, 29, 181–82, 185–87; Finland, 27–28, 29, 652, 658–59, 661, 662–63, 664–65, 668; France, 288, 294; Germany, 26–27, 29, 150, 158, 170;

Greece, 20–21, 233, 234–35 (see also above); Hungary, 440, 442, 443, 446–47, 447, 451; Ireland, 29, 206, 220 (see also Pringle v Ireland above); Latvia, 394; Lithuania, 406; Luxembourg, 420, 424; Malta, 470–71; Netherlands, 28, 29, 494, 496–98, 500–501, 503–4, 506; Poland, 549–50; Portugal, 28, 560–61, 572; Slovakia, 617–18, 626; Slovenia, 636, 642; Spain, 260, 264, 273, 278–79 (see also above); Sweden, 678 European Structural and Investment Fund, 58, 60 see also European Funds, common provisions on European System of Central Banks (ESCB), 48, 391, 689–91 European System of Financial Supervision (ESFS), 46, 48, 150 European Systemic Risk Board, 46, 48–49 European Unemployment Reinsurance Scheme, 61, 65 NATIONAL PERSPECTIVES: Czech Republic, 115–16; Estonia, 191; Germany, 166–67; Hungary, 450; Spain, 271 see also macroeconomic stabilisation mechanism European Union Solidarity Fund, 61–62 Euro-Plus Pact, 50, 262 NATIONAL PERSPECTIVES: Bulgaria, 81, 83; Czech Republic, 121; Denmark, 137; Hungary, 442; Italy, 340 eurozone fiscal capacity, 58, 62–64 NATIONAL PERSPECTIVES: Bulgaria, 90; Estonia, 190–91; Germany, 167; Ireland, 221; Italy, 352–53; Luxembourg, 426; Portugal, 573; Spain, 273n113 Excessive Deficit Procedure (EDP), 39, 40 Exchange Rate Mechanism I, 686 Exchange Rate Mechanism II (ERM II), 103, 315–16 NATIONAL PERSPECTIVES: Bulgaria, 82, 316; Croatia, 315–16, 323; Czech Republic, 102–3; Denmark, 135; Estonia, 183–84; Latvia, 384; Sweden, 102–3 Fenech, Tonio, 477–78 Fico, Robert, 607–8, 609, 615–16, 625, 626–27 Finland, 649–70 characteristics of system and constitutional culture, 650–53 foundations of EMU membership, 654–61 obstacles to EMU integration, 661–67 rules and practice on implementing EMU related law, 667–69 resulting relationship between EMU related law and national law, 669–70 accession to EU, 654, 657 adoption of euro, 654, 657 Bank of Finland, 657 budgetary rules and process, 658

704

Index

Constitutional Law Committee: composition and practice, 651 ex ante reviews, 27–28, 29, 651–52, 655, 660–61 on adoption of euro, 657 on amendments to founding Treaties, 657 on EMU-related measures, 658–59, 661–66, 668, 669–70 courts, 651, 653, 658, 667 and EMU reform proposals, 665–66 exceptive enactments, 653, 654, 657–58 human rights protection, 10, 650–51, 653, 655 implementation of TSCG, 24, 658–59, 661, 663–64, 668–69 internationalisation principle, 655 parliament (Eduskunta): composition, 653 Constitutional Law Committee see above Grand Committee, 660, 667 importance of, 217, 652 parliamentary procedure, 660–61, 667–69 roles and powers, 654–55, 661 transparency and openness, 666–67 vote on adoption of euro, 657 participation in: EFSF, 661–62 ESM, 27–28, 29, 652, 658–59, 661, 662–63, 664–65, 668 president, 652, 654 prime minister, 652, 655 Fiscal Compact see Treaty on Stability, Coordination and Governance fiscal responsibility and medium-term budgetary orientation, strengthening of, 53 NATIONAL PERSPECTIVES: Bulgaria, 90; Croatia, 322; Cyprus, 375; Estonia, 187–88; France, 295–96; Germany, 164; Hungary, 448; Ireland, 220; Italy, 352; Lithuania, 413; Luxembourg, 426; Malta, 473; Netherlands, 508–10, 534; Slovakia, 620; Slovenia, 641; Spain, 272–73, 274; Sweden, 680 Fiscal Stability Treaty see Treaty on Stability, Coordination and Governance France, 283–303 characteristics of system and constitutional culture, 283–87 foundations of EMU membership, 287–90 obstacles to EMU integration, 290–99 rules and practice on implementing EMU related law, 299–302 resulting relationship between EMU related law and national law, 302–3 budgetary rules: implementation of TSCG, 24, 288, 292–94 prior to TSCG, 287, 291 and SGP/EDP, 39, 291–92 Constitutional Council: composition, 284 on constitutional identity, 13, 290, 301 constitutional principles, 284–85, 286–87

decisions: on EU treaties, 289 on freedom of association, 284 on implementation of TSCG, 24, 292–93 roles and powers, 283–84, 285–86, 288 and transposition of directives, 302 and ultra vires doctrine, 14, 292, 301 and EMU reform proposals, 295–99 French Central Bank, 288 human rights protection, 284, 286–87 parliament: composition, 283 participation in EMU matters, 289, 291, 294–95, 299–300 parliamentary system, 283–84 president, 283, 285, 288, 295, 299–300 prime minister and government, 283, 299–301 ratification of ESM Treaty, 288, 294 Germany, 145–74 characteristics of system and constitutional culture, 143–48 foundations of EMU membership, 148–51 obstacles to EMU integration, 151–69 rules and practice on implementing EMU related law, 169–73 resulting relationship between EMU related law and national law, 173–74 Constitutional Court (GCC): approaches to: constitutional identity, 11–12 rule-exception ratio, 146 standard of scrutiny, 30 criticisms of, 148 doctrine on EU integration, 150, 151–52, 173–74 and EMU reform proposals, 162–69 and European Arrest Warrant, 153 and human rights, 13, 14, 152–53 identity reviews, 13, 22–23, 26, 155–57, 158 influence on other national courts, 12, 14–15, 310, 445, 637 and other German courts, 172–73 roles, 146, 147, 148, 150, 152 rulings and judgments: EFSF, 26, 158, 170–71 ESM, 26–27, 29, 158, 170 Lisbon Treaty, 13, 22–23, 26 OMT, 17, 154–55, 156, 159–60 overview, 157–58, 161–62 PSPP-Judgment (GCC), 17–20, 30, 155, 160–61 TSCG, 25, 159 ultra vires reviews, 12–13, 14, 17–20, 153–55, 156–57, 159–61 Deutsche Bundesbank, 150 federal council (Bundesrat), 147, 149, 150, 171–72 human rights protection, 10, 13, 14, 146, 152–53

Index  705 implementation of TSCG, 24, 25 influence on other constitutions, 256, 421 parliament (Bundestag): rights relating to EU laws, 170–71, 172 roles, 147, 152, 155–56, 157, 158, 162–64 and SGP/EDP, 39, 291 Greece, 225–51 characteristics of system and constitutional culture, 225–27 foundations of EMU membership, 227–39 obstacles to EMU integration, 239–46 rules and practice on implementing EMU related law, 246–50 resulting relationship between EMU related law and national law, 250–51 adoption of euro, 228–29, 229–30 Bank of Greece, 230, 246 courts: on Memoranda of Understanding, 236–39, 249–50 scrutiny of secondary legislation, 242–45 structure, 226–27 on Treaties and implementing statutes, 249 and EMU reform proposals, 245–46 human rights protection, 237–38, 239, 240, 241 loan assistance, 42 parliament, 226, 229, 230, 241, 247–49 ratification of ESM and TSCG, 234–35 rescue mechanisms and Memoranda of Understanding, 231–34, 235–39, 247 challenges to, 235–39, 240–41, 243–44, 249–50 Loan Facility and Intercreditor Agreements, 485, 625, 661–62 human rights protection, 13, 14 MEMBER STATES: Bulgaria, 79; Croatia, 307, 308n21, 310, 319; Cyprus, 371, 372, 376; Czech Republic, 111; Denmark, 127, 139–40; Estonia, 186; Finland, 10, 650–51, 653, 655; France, 284, 286–87; Germany, 10, 14, 146, 152–53; Greece, 237–38, 239, 240, 241; Hungary, 434–35, 437, 438–39; Ireland, 197, 210, 211; Italy, 331, 333; Latvia, 379n2, 380; Lithuania, 400; Luxembourg, 420, 421, 428; Malta, 462, 464–65; Netherlands, 489, 490–91, 504; Poland, 10; Portugal, 556; Romania, 584, 589; Slovakia, 608, 614–15; Slovenia, 631, 632; Spain, 257; Sweden, 10, 14, 672, 674 see also counter-limits doctrine Hungary, 433–57 characteristics of system and constitutional culture, 434–36 foundations of EMU membership, 436–44 obstacles to EMU integration, 444–51 rules and practice on implementing EMU related law, 451–57 resulting relationship between EMU related law and national law, 457

adoption of euro, 440, 441 Budgetary Council, 441, 449, 452–53, 454–55 budgetary rules and process, 440–41, 451–54 Constitutional Court: constitutional identity doctrine, 437, 439, 445 general approach, 457 independence of, 435 role and powers, 434 rulings and judgments: on TSCG, 442–43, 446, 447 on Unified Patent Court, 445, 446–47 scrutiny of EU secondary legislation, 445–46 and EMU reform proposals, 447–51 financial assistance, 442, 443–44 fiscal policy, 454–55 human rights protection, 434–35, 437, 438–39 implementation of TSCG, 442–43, 453–54 National Bank of Hungary, 444–45, 450, 451 Orbán government, 441, 444, 447 parliament, 434, 440, 446, 454, 455–57 participation in ESM, 440, 442, 443, 446–47, 451 and Stability and Growth Pact, 441–42, 453–54 taxation, 445 ultra vires doctrine, 439, 446 internal stability pacts: Austria, 24, 527–28, 534 Italy, 34n2, 335, 336–37, 340, 351, 352 International Monetary Fund (IMF), 444 FINANCIAL ASSISTANCE: Cyprus, 371; Greece, 42, 231, 233; Hungary, 443; Ireland, 204–5; Latvia, 384, 387; Lithuania, 410 see also Troika Ireland, 195–221 characteristics of system and constitutional culture, 195–99 foundations of EMU membership, 199–208 obstacles to further transfer of powers, 208–14 rules and practice on implementing EMU related law, 214–19 resulting relationship between EMU related law and national law, 220–21 courts: approaches to Constitution, 197 on doctrine of unamendable rights, 211 and economic matters, 198 rulings and judgments: on Article 29.4.6° immunity clause, 200–203, 218–19 on crisis management measures, 29, 208–9 Crotty v An Taoiseach, 198, 200, 201–2, 207–8, 209–10, 210 Pringle v Ireland, 15–16, 27, 52, 198–99, 207–8, 220, 294 on scrutiny of economic matters, 198 structure, 196–97

706

Index

and EMU reform proposals, 220–21 financial assistance, 117, 204–5 crisis management measures, 204–6, 208–9 human rights protection, 197, 210, 211 implementation of TSCG, 24, 203, 205, 206, 210, 212, 220 Irish Central Bank, 199 parliament (Oireachtas), 196, 214–18 president, 196 ratification of ESM Treaty, 206, 220; see also Pringle v Ireland above ultra vires reviews, 213–14 Italy, 331–56 characteristics of system and constitutional culture, 331–32 foundations of EMU membership, 332–45 obstacles to EMU integration, 345–54 rules and practice on implementing EMU related law, 355–56 resulting relationship between EMU related law and national law, 356 adoption of euro, 334–35 Bank of Italy, 355–56 budgetary rules and processes, 337–44, 345–48, 349, 351 Constitutional Court (ICC): on budgetary process, 346–47, 351 counter-limits doctrine, 344, 348–49 on EMU related measures, 350–51 on general EU membership clause (ItC), 332–33, 344 on primacy of EU law, 333 roles and powers, 332, 333 Conte government, 339, 340–41, 345, 346 and disapplication of limitation provisions, 5–6 and EMU reform proposals, 352–54 human rights protection, 331, 333 implementation of TSCG/FC, 24, 334, 341–45, 346 influence on Spanish constitution, 256 Internal Stability Pact, 34n2, 335, 336–37, 340, 351, 352 ‘Italian position’ on EU proceedings, 354 parliament, 335–36, 353–54, 355 participation in ESM, 341 president, 335 prime minister, 340, 354 regional form of state, 332 social rights and welfare, 335, 336, 337, 349 Jõks, Allar, 178n7, 179 Juncker, Jean-Claude, 138, 427 Kaczynski, Jaroslaw, 553n50 Karamanlis, Kostas, 247 Kazimir, Peter, 627 Kiska, Andrej, 609 Klaus, Václav, 98–99, 100

Latvia, 379–96 characteristics of system and constitutional culture, 379–82 foundations of EMU membership, 383–91 obstacles to EMU integration, 391–95 rules and practice on implementing EMU related law, 395 resulting relationship between EMU related law and national law, 396 accession to EU, 383 adoption of euro, 384–86, 395 central bank (Latvijas Banka), 390–91 Constitutional Court: constitutional identity doctrine, 391–94 on implementing EU directives, 391 on interpretation of constitution, 394 roles and powers, 380–82 and EMU reform proposals, 393–94, 396 financial assistance, 384 Fiscal Council, 388–89 fiscal discipline rules, 387–88, 394 human rights protection, 379n2, 380 implementation of TSCG, 24, 386–87 parliament (Saeima), 395 Lisbon Treaty: and primacy of EU law, 2–4 recognition of Eurogroup, 49 reforms to role of national parliaments, 215 on rights of national parliaments, 427 role of European Parliament, 51 NATIONAL PERSPECTIVES: Austria, 528; Czech Republic, 98–99; Germany, 13, 22–23, 26; Ireland, 200; Netherlands, 518 Lithuania, 399–416 characteristics of system and constitutional culture, 400–403 foundations of EMU membership, 403–10 obstacles to EMU integration, 411–14 rules and practice on implementing EMU related law, 414–16 resulting relationship between EMU related law and national law, 416 accession to EU, 404 adoption of euro, 408–9 Bank of Lithuania, 408 Constitutional Court (CC): attitude to EU-related issues, 406–7, 414 establishment of, 402 role and powers, 402–3 rulings and judgments, 408–9, 410–11 and EMU reform proposals, 412–14 financial crisis measures, 410 challenges to, 403n20, 411 human rights protection, 400 implementation of TSCG, 24, 411–12 parliament (Seimas), 402, 404n24, 411n61, 414–16 president, 402n15 prime minister and government, 402n15 ratification of ESM Treaty, 406

Index  707 Luxembourg, 419–30 characteristics of system and constitutional culture, 419–22 foundations of EMU membership, 422–23 obstacles to EMU integration, 423–26 rules and practice on implementing EMU related law, 427–28 resulting relationship between EMU related law and national law, 428–30 adoption of euro, 422 central bank (BCL), 422–23 courts: Constitutional Court, 420, 421–22, 425 referrals to CJEU, 425–26 structure, 420 and EMU reform proposals, 426 Grand Duke, 420 Grand Ducal decrees, 428 human rights protection, 420, 421, 428 implementation of TSCG, 420, 422, 424 parliament (Chambre des Députés), 419, 420, 421, 422, 427–28 primacy of EU law, 428–30 State Council, 420 taxation, 422, 423–24 Maastricht Treaty: RATIFICATION BY: Denmark, 131; France, 287–88; Ireland, 199; Italy, 334; Luxembourg, 422; Spain, 257, 261, 264 macroeconomic stabilisation mechanism, 59–62 NATIONAL PERSPECTIVES: Bulgaria, 90; Estonia, 190–91; France, 297–98; Germany, 166; Greece, 246; Hungary, 450; Italy, 352; Luxembourg, 426; Netherlands, 514–15; Slovenia, 642; Sweden, 681 see also European Investment Protection Scheme; European Rainy Day Fund; European Unemployment Reinsurance Scheme; eurozone fiscal capacity Macron, Emmanuel, 82, 95, 297, 298, 301 Malta, 461–86 characteristics of system and constitutional culture, 462–65 foundations of EMU membership, 465–71 obstacles to EMU integration, 471–73 rules and practice on implementing EMU related law, 473–85 resulting relationship between EMU related law and national law, 485–86 accession to EU, 466, 468, 471 adoption of euro, 469–70, 474 Central Bank of Malta, 469–70 courts, 463–65, 477 Constitutional Court, 464–65, 468 and EMU reform proposals, 471–73

Fiscal Advisory Council, 479–80 fiscal and budgetary rules, 474–85 implementation of TSCG, 473, 478 human rights protection, 462, 464–65 parliament, 462–63 participation in EFSF and ESM, 470–71 president, 462, 463 prime minister and government, 463 Markets in Financial Instruments Directive (MiFID II), 641 Mečiar, Vladimír, 607, 610n9 medium-term budgetary orientation see fiscal responsibility and medium-term budgetary orientation, strengthening of Merkel, Angela, 299 Meroni doctrine, 49, 55, 189 Minister of Economy and Finance see European Minister of Economy and Finance Mitterrand, François, 299 Moavero Milanesi, Enzo, 354 Multiannual Financial Framework (MFF), 57–58, 58–59, 64 national identity, protection of, 4, 5 see also constitutional identity doctrine and reviews Netherlands, 489–520 characteristics of system and constitutional culture, 489–92 foundations of EMU membership, 493–98 obstacles to EMU integration, 498–517 rules and practice on implementing EMU related law, 518–20 resulting relationship between EMU related law and national law, 520 courts, 490, 494, 507–8, 520 decentralisation, 489–90 Dutch Council of State, 28, 29 and EMU reform proposals, 506, 508–17, 519 on European Arrest Warrant, 507–8 human rights protection, 489, 490–91, 504 implementation of: ESM, 28, 29, 494, 496–98, 500–501, 503–4, 506 Six Pack and Two Pack, 498–500 TSCG, 494, 495–96, 500–503 parliament (States-General), 489, 518–19 public and political attitudes to EU, 492 Nice Treaty, 207n72, 215, 655n15 no bail-out clause, 15–16, 43, 47, 54, 163, 166, 443 obstacles to further EMU integration: limits and conditions on transfer of powers, 9–12 norm creation, 13–15 scrutiny of secondary legislation, 12–13 see also individual Member States Outright Monetary Transaction (OMT) Programme, 35, 43–44 litigation on, 17, 35–36, 154–55

708

Index

Pellegrini, Peter, 609 Permanent Representations, 660 Petrič, Ernest, 637 Poland, 540–53 characteristics of system and constitutional culture, 540–42 foundations of EMU membership, 542–45 obstacles to EMU integration, 545–48 rules and practice on implementing EMU related law, 548–51 resulting relationship between EMU related law and national law, 551–53 accession to EU, 543 adoption of euro, 542–46, 551–52, 553 Constitutional Tribunal: Accession Treaty decision, 542, 547 European Arrest Warrant case, 548 on primacy of constitution, 541–42 on ratification of ESM Treaty, 550 and ratification of TSCG, 551 and ultra vires doctrine, 14 human rights protection, 10 joining Banking Union, 548 membership with derogation, 542–45 National Bank of Poland, 545 parliament (Sejm, Senate), 545, 546–47 ratification of: ESM Treaty, 548–49 TSCG, 550–51 Portugal, 555–80 characteristics of system and constitutional culture, 555–58 foundations of EMU membership, 558–62 obstacles to EMU integration, 563–73 rules and practice on implementing EMU related law, 574–79 resulting relationship between EMU related law and national law, 579–80 attitude to EU, 558, 561 Bank of Portugal, 562 budgetary rules and process, 558–59, 565, 578–79, 579–80 Constitutional Court (PCC): on austerity measures, 44, 565–70 on EU Treaty referendums, 579 roles and powers, 557–58, 565 constitutional identity doctrine, 564 Court of Auditors, 579 court system, 557–58 and EMU reform proposals, 572–73 Financial Assistance Programme (FAP), 117, 571–72 austerity measures and challenges to, 44, 563, 565–70 government, 556–57, 576 human rights protection, 556 implementation of TSCG, 24, 560–61, 572

parliament, 556–57, 574–76, 577, 579 European Affairs Committee, 574–75, 576, 577 participation in ESM, 28, 560–61, 572 president, 556–57 Public Finance Council, 578 ultra vires doctrine, 571 primacy of EU law, 2–6 Prodi, Romano, 337 Public Sector Purchasing Programme (PSPP), 35 litigation on, 17–20, 29–30, 155, 160–61 Radičová, Iveta, 625–26 Rajoy, Mariano, 263 rebus sic stantibus principle, 103–5 referendums: MEMBER STATES: Austria, 524, 526–27; Croatia, 306, 308, 311, 312–13, 318, 319, 320; Cyprus, 365, 366; Czech Republic, 98, 103; Denmark, 126, 131, 133n60, 134, 137; Estonia, 178, 179, 187, 189, 193; Finland, 654; France, 284, 285, 288, 289, 295; Germany, 147; Hungary, 451; Ireland, 24, 27, 197, 199, 200, 203, 205, 206, 207n72, 209, 210, 211n102–3; Italy, 350; Latvia, 380, 383, 384, 385–86; Lithuania, 400, 404; Luxembourg, 419, 426; Malta, 471; Netherlands, 492, 506–7; Poland, 546, 547; Portugal, 559, 560, 577, 579; Romania, 584, 587, 588, 592; Slovakia, 619–20; Slovenia, 633, 634–35, 636–37; Spain, 256, 262–63; Sweden, 673, 677, 679 Reform Support Programme see Structural Reform Support Programme reverse majority voting (RMV), 38, 39, 40, 41 Rio, Rui, 573 Romania, 583–605 characteristics of system, 584–86 foundations of EMU membership, 587–92 obstacles to EMU integration, 592–97 rules and practice on implementing EMU related law, 598–603 resulting relationship between EMU related law and national law, 603–5 accession to EU, 587, 588, 598 adoption of euro, 588, 589–90, 600 budgetary rules and process, 591, 592–95, 598–603 Constitutional Court: composition, 585 constitutional identity doctrine, 596–97 roles and powers, 585, 589, 593, 595–96 rulings and judgments, 586, 590–91, 593–97, 600, 601–3 court system, 585 human rights protection, 584, 589 implementation of TSCG, 588–89, 590–91, 598, 602 National Bank of Romania, 589, 590 ombudsman, 585

Index  709 parliament (Chamber of Deputies, Senate), 584, 586, 592, 598, 600 president, 584, 586, 602 and primacy of EU law, 587–88, 589 prime minister and government, 584, 586 Saint Nicholas package see EMU reform proposals Santos, Luís Máximo dos, 573 Santos, Teixeira dos, 562 Sarkozy, Nicolas, 291, 299 Savona, Paolo, 354 Scicluna, Edward, 477–78 Securities Markets Programme, 35 SGP see Stability and Growth Pact Simitis, Kostas, 244 Single Resolution Board, 47, 49, 56 Single Resolution Fund (SRF), 47, 62–63, 66 NATIONAL PERSPECTIVES: Bulgaria, 322; Croatia, 313, 322–23; France, 298–99; Germany, 168; Hungary, 450; Malta, 485; Netherlands, 516–17; Slovenia, 642; United Kingdom, 696–97 see also Banking Union, completion of Single Rulebook, 46 Single Supervisory Mechanism (SSM): NATIONAL PERSPECTIVES: Bulgaria, 316; Croatia, 315–16; Czech Republic, 121; Germany, 168; Hungary, 450; Italy, 355 Six Pack, 23–24, 37 NATIONAL PERSPECTIVES: Bulgaria, 81; Cyprus, 369–70; Finland, 659, 664; France, 292; Greece, 233; Italy, 337; Luxembourg, 424; Netherlands, 498–500; Portugal, 565; Slovakia, 616; United Kingdom, 693, 694 Slovakia, 607–27 characteristics of system and constitutional culture, 608–11 foundations of EMU membership, 611–18 obstacles to EMU integration, 618–21 rules and practice on implementing EMU related law, 622–26 resulting relationship between EMU related law and national law, 626–27 adoption of euro, 615–16 attitudes to EU integration, 626–27 budgetary rules and process, 616–17 Constitutional Court (SCC): constitutionality reviews, 614 and euro crisis measures, 626 general approach, 610, 621, 626–27 nomination of judges, 609, 610 roles and powers, 609–10 rulings and judgments: on euro amendment, 611–12, 613–14, 618–19 on primacy of EU law, 619, 624 on ratification of Constitutional Treaty, 619–20 and ultra vires/national identity doctrines, 619

court system, 609–10 and EMU reform proposals, 620–21 euro amendment, 611–15, 618, 622–23 human rights protection, 608, 614–15 implementation of: ESM, 617–18, 626 TSCG, 617 parliament (National Council), 609, 610, 614, 615, 622, 623, 624 Committee for European Affairs, 621, 622 president, 609 prime minister, 609, 624 ratification of EFSF framework, 617, 625–26 Slovak National Bank, 616 Slovenia, 631–44 characteristics of system and constitutional culture, 631–33 foundations of EMU membership, 633–36 obstacles to EMU integration, 636–38 rules and practice on implementing EMU related law, 638–43 resulting relationship between EMU related law and national law, 643–44 accession to EU, 634–35 adoption of euro, 635 Bank of Slovenia, 638, 639 Constitutional Court: constitutional reviews, 632, 633 on disapplication of EU law, 637 general approach, 642, 643 referrals to CJEU, 638–39 roles and powers, 632, 636 rulings and judgments: on Basic Constitutional Charter, 638 on EU immunities, 639 on human dignity, 631 on right to referendum, 636–37 constitutional doctrine, academic approaches, 643–44 court system, 632 and EMU reform proposals, 641–43 Fiscal Council, 636, 640–41 human rights protection, 631, 632 implementation of TSCG, 24, 635–36, 636–37 parliament (National Assembly), 632, 634, 637, 638 Soares, Mário, 561 Sousa, Marcelo Rebelo de, 557 Spain, 255–80 characteristics of system and constitutional culture, 255–58 foundations of EMU membership, 259–65 obstacles to EMU integration, 265–74 rules and practice on implementing EMU related law, 274–79 resulting relationship between EMU related law and national law, 279–80 accession to EU, 259 austerity measures, 269–70, 280

710

Index

budgetary and financial stability, 261–63, 265–69, 272–74, 277 Catalonia, 258, 267, 273–74 central government, 280 and autonomous communities, 256–57, 263, 266–69 and EU/EMU affairs, 276–79, 280 role in relation to treaties, 259 constitutional amendments, 257, 261–63, 264–65 Constitutional Court (SCC): and CJEU, 257–58 counter-limits doctrine, 258, 271 and EMU reform proposals, 270–73 judicial review of treaties, 264–65 role and powers, 256, 257–58, 260 rulings and judgments: on austerity measures, 258, 269–70 on autonomous communities, 256 on budgetary and financial stability, 266–69 on EMU matters, 279 on implementation of TSCG, 24 on primacy of EU law, 258, 260–61 on procedure for constitutional amendments, 264–65 theory of constitutional interpretation, 257 ultra vires doctrine, 14, 271 financial assistance, 269, 273, 278–79 human rights protection, 257 implementation of TSCG, 261–63 Independent Authority for Fiscal Responsibility, 277, 278 parliament: and EMU matters, 273, 277–79, 280 and general EU affairs, 274–76 role in relation to treaties, 259 political decentralisation, 256–57, 263, 266–69, 280 president, 256 ratification of ESM Treaty, 260, 264 social rights and welfare, 263, 268–69, 269–70, 271–72, 280 Stability and Growth Pact (SGP): ineffectiveness during financial crisis, 37, 441 reforms, 37–41, 57 structural deficit limit, 23–24 NATIONAL PERSPECTIVES: Bulgaria, 83; Croatia, 306; Denmark, 136; France, 291–92; Greece, 249; Hungary, 441–42, 453–54; Italy, 334, 336–37; Netherlands, 492 see also excessive deficit procedure; internal stability pacts Structural Reform Support Programme (SRSP), 57–58, 58–59 NATIONAL PERSPECTIVES: Czech Republic, 115; Netherlands, 534 Suárez, Adolfo, 259 Sulík, Richard, 625, 626

Sweden, 671–83 characteristics of system and constitutional culture, 671–77 foundations of EMU membership, 677–80 obstacles to EMU integration, 680–81 rules and practice on implementing EMU related law, 681–83 resulting relationship between EMU related law and national law, 683 bilateral loan to Ireland, 205 courts, 673, 674–75 and EMU reform proposals, 680–81 and ERM II, 102–3, 679 fiscal and budgetary rules and policy, 675–77, 681–82 future EMU membership, 679–80, 681 government, role of, 675–77, 681–83 human rights protection, 10, 14, 672, 674 implementation of TSCG, 678–79 Law Council (Lagrådet), 675 National Central Bank (Riksbank), 675, 678, 680, 681–82 parliament (Riksdag), 672–73, 675–78, 681–83 Treaty establishing a Constitution for Europe, 3 NATIONAL PERSPECTIVES: Estonia, 178n7; France, 288, 289; Luxembourg, 426; Portugal, 579; Slovakia, 619–20; Spain, 260, 264, 271n88 Treaty on European Union (TEU): Article 50, 307–8, 350 and European Commission, 374 and implementation of directives, 520 on membership with derogation, 103, 542–43 and national identity, 4, 5 and national parliaments, 427–28 and ultra vires doctrine, 19 and values of EU, 558 see also Lisbon Treaty; Maastricht Treaty Treaty on Stability, Coordination and Governance (TSCG, Fiscal Compact, Fiscal Stability Treaty): balanced budget rule, 23–24, 41, 262 legal controversies and litigation on, 7, 21–25, 29–30 reform proposals, 53; see also fiscal responsibility and medium-term budgetary orientation, strengthening of signing of, 23, 260 NATIONAL PERSPECTIVES: Austria, 24, 528, 530, 531–32; Belgium, 24, 25; Bulgaria, 81, 82, 83; Croatia, 306, 313; Cyprus, 367–68; Czech Republic, 105–7, 115, 117, 119; Denmark, 136–37; Estonia, 24, 181–82; Finland, 24, 658–59, 661, 663–64, 668–69; France, 24, 288, 292–94; Germany, 24, 25, 150–51; Greece, 234–35; Hungary, 440, 446, 447, 453–54; Ireland, 24, 203, 205, 206, 210, 212, 220; Italy, 24, 334, 341–45, 346; Latvia, 24, 386–87; Lithuania, 24, 411–12; Luxembourg, 420, 422, 424;

Index  711 Malta, 473, 478; Netherlands, 494, 495–96, 500–503; Poland, 550–51; Portugal, 24, 560–61, 572; Romania, 588–89, 590–91, 598, 602; Slovakia, 617; Slovenia, 24, 635–36, 636–37; Spain, 24, 260, 261–63, 264, 277; Sweden, 678–79 Treaty on the Functioning of the European Union (TFEU): Article 136 amendment, 42, 51n155, 54; see also European Stability Mechanism and disapplying national provisions, 5 and EU budget, 62, 64 and joining ERM II, 103 no bail-out clause, 15–16, 43, 47, 54, 163, 166, 443 Troika, 48, 204–5, 232, 233, 235, 247, 370 see also under Portugal TSCG see Treaty on Stability, Coordination and Governance Tsipras, Alexis, 232 Two Pack, 37, 45 NATIONAL PERSPECTIVES: France, 292; Italy, 337; Luxembourg, 424; Netherlands, 498–500; Portugal, 565; Spain, 277; United Kingdom, 694 Ukraine, 409, 492, 507 ultra vires doctrine and reviews, 12–13 MEMBER STATES: Cyprus, 374; Czech Republic, 14–15, 100–101, 112–13, 114; Denmark, 14–15;

France, 14, 292, 301; Germany, 12–13, 14, 17–20, 153–55, 156–57, 159–61; Greece, 239, 243; Hungary, 439, 446; Ireland, 213–14; Italy, 350; Netherlands, 507–8; Poland, 14; Portugal, 571; Slovakia, 619; Spain, 14 see also counter-limits doctrine United Kingdom, 685–97 Bank of England, 688, 689, 692 bilateral loan to Ireland, 205 joining EMU: cases for and against, 685–88, 697 constitutional basis for, 687–88 monetary and economic policy: consequences of opt-out, 689–93 impact of eurozone, 694–97 opt-out (Protocol No 15), 132, 543, 688–93 parliamentary scrutiny reserve, 518–19 Viegas, Miguel, 573 Vienna Convention on the Law of Treaties, 104 Vujcic, Boris, 315 Wilders, Geert, 492, 500–501, 505n76 World Bank, financial assistance, 384, 443 Zapatero, José Luis Rodríguez, 263 Zeman, Miloš, 99–100

712