We are delighted to welcome this guest post from Dr Roderic O’ Gorman. Dr O’Gorman is a lecturer in the School of Law & Government in DCU where he teaches EU Law, Constitutional Law and Business Law. He is also Chairperson of the Green Party.

Yesterday, the European Court of Justice (ECJ) gave its decision in the Pringle v. Ireland case, where it determined that the European Stability Mechanism Treaty (ESM) was compatible with EU law.

The case concerned a challenge by independent TD Thomas Pringle to the ratification of the ESM Treaty by the Irish Government. His argument that provisions of the ESM Treaty were incompatible with the Constitution and therefore a referendum was required to validate Irish ratification (as per the Crotty case) was rejected in both the High Court and the Supreme Court. However, the Supreme Court did refer a number of questions to the ECJ for clarification.

These questions can be broken down to two key issues. Firstly, whether the EU Decision 2011/199, purporting to amend Article 136 TFEU to include a reference to a stability mechanism, was valid? The second question concerned whether the ESM Treaty itself was incompatible with the existing Union Treaties.

The first question turned on whether the use of the simplified revision procedure under Article 48(6) TFEU had been appropriate. This procedure, first introduced in the Lisbon Treaty, can only be used in Part III of the TFEU (Union Policies and Internal Actions). Further, it cannot increase the competences of the Union.

While Article 136 TFEU is itself in Part III of the TFEU, the applicant argued that the amendment proposed in reality impacted on the Union’s monetary policy (a sole competence of the EU) and the coordination of economic policy between the Member States (where the Union only has coordinating powers). The ECJ rejected the monetary policy argument, stating that monetary policy was about price stability, whereas the objective of the amendment to Art 136 TFEU was about the stability of the Euro area as a whole. In relation to the coordination of economic policy, the Court found that the Union Treaties contained no specific power to create a stability mechanism and therefore Articles 4(1) & 5(2) TFEU, which state that powers not given to the Union remain with the Member States, allowed the Member States create the mechanism themselves. The inclusions of strict conditions on any loans given to a Member State from the ESM would ensure that it operated in a way that complied with the Union’s competence in the coordination of economic policy.

The Court also rejected the argument that the amendment to Art 136 TFEU would result in new competences for the Union, stating that the Union would have no new legal base to undertake actions that it did not have prior to the amendment.

The second key issue concerned the overall compatibility of the ESM Treaty with provisions of Union law. The applicant alleged that the ESM was in breach of a range of articles in the TEU and the TFFEU.

The Court reiterated its rejection, discussed above, of the argument that the ESM Treaty interfered with the Union’s competence in the area of either monetary policy or the coordination of national economic policy. It also held that the ESM Treaty did not interfere in the Unions competence regarding economic policy. It also rejected arguments that the roles assigned to the European Commission, the European Central Bank and the Court of Justice itself by the ESM Treaty risked them acting outside their legal powers.

A significant element of the applicant’s argument was that the ESM Treaty infringed two provisions of Union law designed to maintain the Union’s financial balance: the prohibition on the European Central Bank or national central banks giving overdraft facilities to the Member States under Article 123 TFEU and the so called ‘no bail-out’ clause of Article 125 TFEU.

On the first point, the Court determined that Art 123 TFEU was addressed to the ECB and national central banks, not to the Member States themselves. Thus it did not stop the Member States forming a mechanism such as the ESM which would loan to Member States facing difficulties.

Regarding Article 125 TFEU, the Court interpreted the article as not prohibiting the granting of financial assistance to another Member State in any circumstances. Rather, it prohibited the grant of financial assistance “… as a result of which the incentive of the recipient Member State to conduct a sound budgetary policy is diminished” – a considerably less stringent limitation.

Finally, the Court rejected the argument that the establishment of the ESM outside of the context of the Union Treaties resulted in a lack of effective judicial protection, in breach of Article 47 of the Charter of Fundamental Rights. The Court confirmed that as the Charter only applies to the application of Union law by the Member States and that the ESM Treaty was not an element of Union law, the Charter could not be applied to it.

While the overall decision may not be a huge surprise, undoubtedly elements of the judgment will attract attention. The Court has had to apply narrow definitions to terms such as monetary and economic policy, and interpret the provisions of Article 123 and 125 TFEU in a limited fashion, in order to ensure that no violation of Union law was detected.

Perhaps most significantly from the point of view of human rights protection, the confirmation that the Charter of Fundamental Rights does not apply to the operation of the ESM reveals that the body operates in a legal vacuum, free from the norms that place limits on the general application of Union law. While fundamental rights have not yet been cited in opposition to the programmes that have been implemented in Ireland, Portugal and Greece, there is an arguable case that the significant changes required by these programmes to labour law and social protection spending infringe some social rights. The Pringle decision suggests that emergency fund programmes conducted by it will have even fewer restrictions controlling their application. This must surely be a source of concern to those who wish to see the EU do more to protect social and economic rights.