10.2.1 Responsible Instead of Responsive Government: The Increasing Lack of Accountability and Legitimacy in the EMU

Progressive economic integration in the EU has reinforced the legitimacy issues of European governance. Decisions taken at the supranational level increasingly affect the design of national distribution regimes or have otherwise far-reaching distributional effects for the Member States. Moreover, the EMU increases political and economic interdependencies among Euro Member States. The measures taken to rescue the common currency and counter the financial crisis have further restricted national scope for distributional policy as the political and economic costs of comprehensive welfare state regulation have become ever higher. This led to a deep legitimacy and accountability crisis: The Eurozone Member States lose the capacity and political space for implementing distributive policies, but at the same time often have to bear the consequences of decisions made by other national legislators.Footnote ² This problematique is exacerbated by the fact that fiscal and economic policy recommendations on the European level can now also be enacted in the absence of majority decisions. Together these developments contribute to further political imbalance among the Member States.Footnote ³ In addition, decisions with far-reaching distributional effects within the EMU are today mostly dominated by executive bodies and thus undermine the idea of democratic-parliamentary self-legislation.Footnote ⁴ Even if one accepts an increasing need to allow for competing expressions of the public will,Footnote ⁵ parliamentary legislation by democratically elected representatives is still an irreplaceable mechanism of responsiveness in a democratic polity.Footnote ⁶

In the context of the Eurozone crisis, this post-democratic problematique becomes even more salient, since political decision-makers have long proven to be largely ignorant to alternative ways of dealing with conflicts and negative social impacts of the measures taken.Footnote ⁷ This reflects a general shift from responsiveness to responsibility in democratic governance.Footnote ⁸ Governments and their supporting parties are increasingly compelled to act responsibly towards markets in terms of risk minimisation.Footnote ⁹ The yardstick for such responsibility is formed by international and supranational guidelines or standards, which have become more detailed and comprehensive, especially during the Euro crisis. The dominance of responsibility is also expressed in the rhetoric of ‘no alternative’, which tends to discredit any discussion of alternative response options as inadequate, inefficient, or even counterproductive.Footnote ¹⁰ In this context, responsiveness to citizens’ political preferences is increasingly difficult to realise for political parties. There is a risk that open debate about alternative visions of the common good, and the appropriate measures to achieve it, is replaced by a managerial mindset of optimising governance goals through technocratic administration. Citizens in the EU Member States are thus exposed to political and economic decisions that are neither legitimised through parliamentary-democratic decision-making at the European level nor through responsive democratic procedures at the Member State level.Footnote ¹¹ This constellation results in a new quality of conflicts about EMU governance, about the consequences of the European monetary policy for the distributive regimes of the Member States and about the democratic accountability of EMU institutions. The question therefore arises to what extent accountability mechanisms beyond parliamentary-democratic decision-making may compensate for the lack of responsiveness by enhancing openness and publicness of executive decision-making.

10.2.2 Transnational Solidarity Conflicts: A New Type of Conflicts and Their Potential for Destabilising the EMU

The Eurozone crisis has created a new dynamic of conflict that can be described as transnational solidarity conflicts. Conflicts arise not only over the extent to which the adjustment burdens caused by the common currency should be borne jointly by the members of the Eurozone but also over how social security can be secured for those population groups that do not directly benefit from freedom of movement within the EU. Today, solidarity between and within the Member States can no longer be shaped and developed independently, thereby increasingly producing conflicts between societal groups that cut across the boundaries of the national welfare state.

Transnational solidarity conflicts illustrate the unprecedented politicisation that European economic governance witnessed during the Eurozone crisis.Footnote ¹² Politicisation can be understood as comprising three interrelated elements: raising awareness for a specific issue, mobilising around this specific issue, and polarising the debate about this issue.Footnote ¹³ The Eurozone crisis has raised public awareness of the fact that European governance has significant distributional effects between Member States and within national distributional regimes.Footnote ¹⁴ The handling of the crises has laid bare the distributional effects of monetary policy and highlighted the inextricable link between economic policy choices and monetary policy. It revealed a multiplicity of political conflicts in terms of the distribution of costs and benefits built into a highly interdependent transnational polity. With transnational solidarity conflicts flaring up, different policy preferences regarding the appropriate answer to major economic shocks have once more shown their divisive potential by splitting the European Union, yet again, into ‘southern’ and ‘northern’ blocks. The result was increasingly polarised political spaces, with new salience for and mobilisation around European issues at both the national and the supranational levels.Footnote ¹⁵

In the context of intensifying transnational solidarity conflicts, European issues became a pivotal point of reference and mobilisation in the construction of political identities. The consensual nature and relative sobriety of European integration were suddenly permeated by the political logic of antagonism. Measures of crisis reaction and the future of the single currency have become a central issue in national election campaigns and in the political positioning of individual parties.Footnote ¹⁶ There is a serious risk, however, that the destructive dynamic of such polarised conflicts may not stop at the level of disagreement about specific policies. Rather, when institutions face serious critique because of their decision-making, politicisation may spill over from the conflictual issue itself into the ‘conflict frame’,Footnote ¹⁷ that is from the policy level to the polity level. Once the political and legal infrastructure (i.e. the ‘conflict frame’) of a political order is perceived by a significant part of the citizenry as allowing for no alternatives to currently dominant political projects, institutions themselves might come under attack. Polarisation therefore carries a destructive threat for the political structure of the EMU and the EU as a whole.

10.2.3 Constitutional Accountability as a Tool to Mitigate Adverse Effects of Transnational Solidarity Conflicts?

In the light of intensified and potentially divisive transnational solidarity conflicts, the role of accountability of EMU institutions gains new salience. If effective accountability mechanisms are in place, it may be possible to channel the destructive potential of transnational solidarity conflicts in a way that allows not only to enhance responsiveness of EMU institutions towards the citizenry but also to prevent a spill-over of policy conflicts to the level of the polity. Against this backdrop, I will focus in this chapter on how legal accountability can contribute and in fact has contributed to mitigate the divisive potential of transnational solidarity conflicts in the EMU. The idea is that constitutional review may provide a suitable tool to articulate alternative visions of the common good that have not been taken into account in previous, crisis-driven decision-making. It may thereby contribute to enhancing publicness of an executive decision, as it allows clarifying in the first place which common goods are legitimate or ought to be considered according to the normative (constitutional) framework. Moreover, by forcing decision-makers to justify their decisions and to reveal the considerations behind a given decision, legal accountability may also enhance the openness of decisions. In the following, I will concentrate on the specific role constitutional law has played for the accountability of the EMU during and in the aftermath of the eurozone crisis considering both domestic and EU constitutional law.

Constitutional accountability merits closer inspection for at least two reasons: First, in many polities in the EMU, constitutional law serves as a major benchmark for legal accountability of political institutions and decision-makers. Second, while theoretical approaches to conflict teach us that social conflicts have the potential for destructive and disintegrative effects, they have also highlighted the potentially integrative effect of conflicts for political communities. Such integrative effects, however, presuppose mechanisms of conflict resolution that allow for the (re)articulation of a normative framework.Footnote ¹⁸ Constitutional law, as a core infrastructure for the resolution of political conflict and normative orientation in modern societies, lends itself as a natural candidate to channel social conflicts in a way that reduces their destructive tendencies to a minimum. Constitutions aim to serve as ‘normative scripts’Footnote ¹⁹ for political actors, guiding and limiting political action not only in times of seeming consensus but also in times of crisis and open conflict. The core challenge for constitutionalism in times of fundamental crises is to ensure both reliable normative continuity and sufficient flexibility to adapt normative concepts to new crisis-driven societal demands.Footnote ²⁰ It is precisely through these interpretative processes in which limits and adaptations are negotiated that constitutions may serve to productively channel social conflicts. They thereby provide a space to negotiate and ultimately determine the common goods which can legitimately or sometimes even ought to be taken into account in a political order.

By the same token, individuals and social groups may integrate into a political community through discursive practices in which they – at least in their majority – accept and refer to the constitution as the relevant normative framework. Although they may interpret concrete constitutional norms in different or even divergent ways, they nonetheless refer to the same document and thereby implicitly or explicitly accept it as the dominant normative symbol of the political community.Footnote ²¹ In this sense, the constitution becomes indiscriminate towards the various visions of the collective self-perception. Such an understanding fits well with Claude Lefort’s idea of the empty place of power in modern democracies.Footnote ²² The constitution itself symbolises this empty place if its concrete meaning remains open to reinterpretation and to differing, even diverging, meanings that are given to its provisions. ‘Emptiness’ in this sense does not equal arbitrariness but rather results from reiterative discursive processes in which the respective provisions are identified with different meanings by different actors.Footnote ²³ It is precisely this form of emptiness through discursive and reiterated re-interpretation that allows a constitution to both channel the destructive potential of major social conflicts and provide a meaningful normative benchmark for accountability.

In light of these theoretical considerations, constitutional accountability mechanisms need to fulfil two conditions in order to allow for a productive conflict management: On a procedural level, they need to be inclusive in order to allow a variety of actors to bring their case to court and thus to construct the societal conflict as a constitutional conflict. On a substantive level, constitutional provisions need to preserve a certain emptiness in their interpretation to allow different political actors to continuously identify with constitutional provisions and make the constitution the core normative point of reference. For constitutional courts as the most authoritative interpreters of constitutional norms, this means that they should refrain from an overly saturated interpretation that injects specific economic concepts or policy choices into constitutional norms. Likewise, to guarantee that a broad variety of constitutional actors can indeed participate in the discursive and iterative process of opening and emptying the meaning of constitutional norms, constitutional courts need to make sure that the process of political will-formation and decision-making remains open. More specifically, this requires power asymmetries not to become too much entrenched and political decision-making not to be permanently captured and constrained by arguments of necessity or market responsibility.

If constitutional norms on EU level become a shared reference point for negotiating and managing transnational solidarity conflicts, they may contribute to enabling polity building also on EU level. At the same time, this would also enhance the conditions for improving the accountability infrastructure on the supranational level as regards to the ‘publicness’ dimension developed in the introductory chapter of this volume. According to this dimension, accountability serves to ensure that official action is oriented towards the common good. While the common good might be defined differently by different actors in a polity, a collectively acceptable definition of a common good may be facilitated if it echoes principles enshrined in a shared constitutional framework. Moreover, constitutional law serves as an institutionalised framework to ensure the responsiveness of political actors towards the citizenry as opposed to responsibility towards markets or private interest. Transnational solidarity conflicts, however, are governed not only by EU constitutional law but also by domestic constitutions. The following two sections of this chapter will therefore assess the role of constitutional accountability for the management of transnational solidarity conflicts in the EMU on the domestic level and on the EU level in turn.

10.3.1 From Restrained to Resistive Constitutionalism: The Austerity Case Law of the Portuguese Tribunal Constitucional

During the economic and financial crisis, the PTC emerged as a ‘lone hero against austerity’.Footnote ²⁴ In its early judgements of 2010 and 2011, however, the court adopted a restrained position towards the austerity plans of the liberal-conservative government. In its first decision on crisis measures (acórdão 399/2010), the PTC had to decide whether a tax increase in the current year and for the entire income of that year was compatible with the principle of the protection of legitimate expectations as an expression of the principle of the rule of law (Article 2 PC). The court denied a violation of the principle of the protection of legitimate expectations. It basically argued that taxpayers could not have expected that taxes would remain unchanged in the current year, given the tight budget situation resulting from the current economic and financial crisis.Footnote ²⁵ In light of the specific weight of these budgetary constraints,Footnote ²⁶ the court granted legislative bodies particularly large discretion.

The PTC maintained this general line in Acórdão 396/2011 declaring cuts in public service allowances and salaries at issue to be constitutional. Once again, the court resorted to the logic of the economic state of emergency and the resulting need for quick reactions and far-reaching decisions.Footnote ²⁷ The court argued that even if the principle of equality in general requires that all citizens had to contribute equally to the public finances, this does not imply a priority of budget consolidation through tax increases over public salary cuts but leaves the choice of measures to the legislative bodies.Footnote ²⁸ According to the court, the principle of equality only precludes arbitrary unequal treatment which imposes an unjustified and disproportionate burden on a particular societal group. On the one hand, this line of jurisprudence left the political-parliamentary process as open as possible by granting the legislator wide discretion. On the other hand, it led to the constitution almost completely taking a back seat to economic rationality and crisis exceptionalism. Rather than defining effective criteria of constitutional accountability, the court emphasised that, considering the ‘absolutely exceptional economic development’,Footnote ²⁹ the overriding public interest pursued with the cuts was paramount. It was ‘a situation of emergency’ in which the measures taken were ‘absolutely necessary’.Footnote ³⁰ Both decisions illustrate that the court did not develop any substantial standard of constitutional accountability but was rather satisfied with a procedural safeguard, namely that the legislator demonstrated that it had indeed considered alternative options before taking the respective measures.

This restrained position of the PTC changed in the second phase of its Euro-crisis jurisprudence. As of 2012, the court no longer accepted the reference to the economic crisis as a free ticket for permanently broad legislative discretion. Instead, it started interpreting the principles of equality and proportionality in a way that set a limit for long-term and structural shifts in economic burden sharing. The core instrument for this shift was the ‘invention’ of the principle of proportional equality in acórdão 353/2012. The question at issue was whether cancelling the 13th- and 14th-month salaries for public sector employees as foreseen under the Budget Law of 2012 was in breach of the principle of equality by placing the burden exclusively on public employees. In stark contrast to the broad discretion granted to the legislator in earlier decisions, the PTC now declared the cuts unconstitutional for violating the principle of equality in conjunction with the principle of proportionality.Footnote ³¹ While the court still held that a different treatment of public and private sector employees in terms of their respective burdens is permissible in times of crisis, it clarified that the extent of the unequal treatment must itself be proportionate to remain within ‘limites do sacrifício’.Footnote ³² In the eyes of the court, this was no longer the case. The new cuts hit public sector workers unilaterally so that the unequal burden sharing of the exceptional fiscal situation reached a point, where it was disproportionate regarding the constitutional principle of equality.

The principle of proportional equality structured the austerity case law of the PTC from thereon leading to a number of public pay cuts considered to be one-sided and unconstitutional.Footnote ³³ Despite some harsh political and doctrinal criticism,Footnote ³⁴ the concept of proportional equality strengthened the benchmark for constitutional accountability. Moreover, the PTC combined this benchmark with a duty on part of the legislature to properly justify austerity measures in the light of the rights and principles enshrined in the Portuguese Constitution. Hence, domestic constitutional rights need to be ‘properly’ taken into account by the government and the legislature when implementing measures of crisis reaction in the EMU context.Footnote ³⁵ It thereby combined a procedural understanding of accountability with a more ‘substantiated’ version of constitutional accountability. By requiring ‘proportional equality’, the court developed a benchmark that not only enabled a ‘resilient constitutionalism’Footnote ³⁶ by setting perceptible limits to political crisis management but also reactivated the socially progressive aspiration of the constituent moment in Portuguese constitutional law with its strong emphasis on social rights.Footnote ³⁷ In a political constellation characterised by a strong power asymmetry between creditor and debtor countries and a dominant rhetoric of emergency and no alternatives, the adjudication of the PTC thereby allowed to effectively articulate alternative policy options in the language of constitutional law. Consequently, the political debate started to centre on the Constitution and its ‘adequate’ interpretation against the backdrop of a profound crisis.Footnote ³⁸ In this sense, the accountability standard applied by the court is focused on binding political action to the common constitutional good (publicness) while at the same time leaving room to negotiate politically how this common good ought to be interpreted and realised.

At the same time, however, this line of constitutional interpretation effectively made the transnational dimension of the underlying conflicts invisible. The crucial parameters of accountability, deduced from constitutional principles of proportionality, equality, and protection of trust, framed the crisis-induced conflicts as an ideological issue between liberal, market-oriented and progressive, welfare state-oriented ideas of order and as a national redistributive conflict between public servants and private sector employees. Despite strong arguments in favour of submitting the question of the compatibility of the conditionalities with the fundamental rights of the Union to the ECJ,Footnote ³⁹ the PTC has not yet submitted any question from the crisis case law to the ECJ for a preliminary ruling. While the court thereby may have prevented an open conflict between national constitutional principles and European constitutional law, it missed the opportunity to renegotiate the social content and the social formative power of the Union’s constitutional law and to concretise it in the context of the crisis.Footnote ⁴⁰ Instead, the question of the mode and measure of solidarity and the distribution of any adjustment costs was nationalised and the mode of accountability remained largely deductive.

10.3.2 ‘Lost in National Democracy?’: The Aporias of the Eurozone Crisis Case Law of the German Federal Constitutional Court

At first glance, similar considerations apply to the German Federal Constitutional Court. Like the PTC, the Bundesverfassungsgericht has set important limits to crisis management, and like the PTC, it has nationalised the crisis-induced conflict by emphasising the constitutional necessity of an autonomous choice of means at the national level. However, this type of ‘nationalisation’ turns out to be even more ambivalent as it harbours a strong disintegrative potential as the court largely ignores the transnational horizontal effects of its own decisions.

Already in its early decisions on the eurozone crisis measure, the GFCC insisted on the requirement of parliamentary participation in all measures with budgetary impact.Footnote ⁴¹ Building on its earlier jurisprudence in MaastrichtFootnote ⁴² and Lisbon,Footnote ⁴³ the court ruled that the Bundestag must always hold plenary sessions when ‘essential decisions which affect the overall budgetary responsibility of the German Bundestag’ are involved.Footnote ⁴⁴ The court thereby blocked a delegation of decisions on crisis management to a smaller committee and insisted that the Bundestag must retain a ‘continuing influence’Footnote ⁴⁵ and must not be relegated to merely nodding through executive measure of crisis management.Footnote ⁴⁶ In addition, the court also held that the federal government had violated its constitutional duty to provide information to the parliamentFootnote ⁴⁷ and stressed the need to ensure that the information forwarded to the parliament was used by the latter to allow for an open and democratic will-formation.Footnote ⁴⁸ This line of reasoning reflects a mostly deductive and procedural approach to constitutional accountability. It concretises the constitutional requirements by highlighting the necessity of procedural safeguards for open parliamentary debate and will formation.

However, other parts of the court’s crisis jurisprudence rather led to narrowing the space for constitutionally legitimate definitions of the common good and the measures to its realisation. In the ESM-rulingFootnote ⁴⁹ the court build on its earlier case law in Maastricht, where it made Germany’s participation in the monetary integration conditional to ‘German conditions’Footnote ⁵⁰ by linking price stability and budgetary discipline as the supreme objective of the future currency area to the principle of national democratic self-determination.Footnote ⁵¹ In the ESM-ruling the GFCC tightened this standard further and considered the design of the monetary union as a stability community as the ‘essential basis’ for Germany’s participation in the EMU.Footnote ⁵² While the court held the concrete mechanism in this case to be constitutional, it effectively made any solidarity-based aid measures dependent not only on the approval by the Bundestag but also on the parliamentary prerogative to determine conditionalities ensuring that the overriding goal of price stability and balanced budgets is not jeopardised.Footnote ⁵³

Given the dominant executive mode of technocratic ‘risk management’Footnote ⁵⁴ during the eurozone crisis, the court can certainly be praised for protecting parliamentary budgetary rights, defending the openness and revocability of democratic legislation against supposed crisis imperatives.Footnote ⁵⁵ While this again strengthened procedural accountability under German constitutional law, the decision also contains a substantial element. The court closed the potential meanings of democracy under the Basic Law by linking it to price stability and frames possible alternatives for shaping transnational solidarity in the Eurozone (e.g. Eurobonds or a transfer union) as breaches of German constitutional law. It thereby significantly narrows the political space for negotiating a European common good. Furthermore, by linking the national principle of democracy to supranational conditionality, the court de facto contributes to depriving the legislatures in the debtor countries of precisely those political options that the court insists on securing on the national level. From a transnational perspective, it thus becomes apparent that given the power asymmetries of the consolidation regime ‘more democracy’ in Germany is synonymous with ‘less democracy’ in Greece or Portugal.Footnote ⁵⁶ Rather than critically reflecting transnational power asymmetries enshrined in the crisis-ridden EMU, the court found itself entangled in an aporia of a national state-based understanding of democracy.

Unlike the PTC, however, the GFCC did not ignore the transnational dimension of the underlying conflicts entirely. In its Outright Monetary Transactions (OMT) and Public Sector Purchase Programme (PSPP) rulings,Footnote ⁵⁷ it referred for the first time to the ECJ and framed the conflicts about crisis management basically as vertical conflicts about competences. The core complaint underlying both the OMT and the PSPP decision was that by buying government bonds of overly indebted eurozone Member States, the European Central Bank (ECB) is de facto violating Article 123 TFEU and thus acting ultra vires. These measures were said to imply potentially unlimited liability on the part of Germany, preventing the Bundestag from exercising its overall budgetary responsibility and thus, violating constitutional identity. In contrast to its Maastricht ruling the GFCC now emphasised the constitutional necessity of strengthening the democratic accountability of the ECB and limiting its independence. By referring these two cases to the ECJ, the court created an important opportunity for the transnational dimension of the conflict to be articulated in the language of European constitutional law. The GFCC’s referral in OMT was celebrated by some as a ‘good day for democracy in Europe’ because it revealed the legitimacy problems of the ECB’s relevant decisionsFootnote ⁵⁸ and was said to provide an effective red line limiting technocratic crisis management.Footnote ⁵⁹

While the court in the end accepted the ECJ’s assessment in OMT that the ECB has not exceeded its competences as the programme had primarily monetary policy character,Footnote ⁶⁰ the controversy about how to hold the ECB accountable also for the transnational economic impact of its decisions continued in the PSPP case. Upon referral, the ECJ again argued that indirect economic policy effects do not call into question the monetary policy character of a measure and emphasised that independence of the ECB precluded a stricter proportionality review. The GFCC insisted on strictly reviewing whether the ECB had proportionally fulfilled its functions or exceeded its competences by acting disproportionately. The GFCC eventually found that the ECB had acted ultra vires.Footnote ⁶¹ It held that the ‘right to democracy’ under German constitutional law was violated since the ECB had neither examined nor proven that the measures foreseen in the PSPP were proportionate despite their effects on economic policy.Footnote ⁶² The measures taken by the ECB therefore resulted in a ‘structurally significant shift of competences’Footnote ⁶³ to the detriment of the Member States. The court also found the ECJ’s decisions to ‘obviously’ transgress its competences as its reasoning was, in view of the GFCC, methodologically ‘incomprehensible’ and thus ‘objectively arbitrary’.Footnote ⁶⁴ On one hand, the decision by the GFCC deserves credit for laying bare the accountability problems of the executive-driven EMU governance and insisting on the centrality of parliamentary will-formation.Footnote ⁶⁵ On the other hand, it also bears the risk of constitutional closure and power shift to courts rather than to the legislator. A strict proportionality review as required by the GFCC would ultimately empower constitutional courts to take a decision on conflicting monetary and economic policy objectives.Footnote ⁶⁶ This would not only undermine the ECB’s independence but also increase the risk that particular economic and monetary policy understandings are again constitutionalised. Substantial accountability could eventually be traded for closing the democratic space for constantly (re-)negotiating the common goods in the European constitutional order.

10.3.3 In Search of a European Common Good: Deductive and National Accountability in a Transnational Context

The two constitutional courts reviewed in the previous sections largely applied a deductive approach to accountability in the EMU by applying exclusively domestic constitutional standards to transnational solidarity conflicts. In the case of the GFCC, the primary benchmark was national parliamentary sovereignty as well as fiscal stability as enshrined in the German Basic Law. In the case of the PTC, the primary benchmark were the principles of proportionality, equality and equal burden sharing as enshrined in the Portuguese Constitution. Likewise, both courts tended to ‘nationalise’ transnational solidarity conflicts rather than taking into account horizontal effects (in the case of Germany)Footnote ⁶⁷ or supranational constitutional law (in the case of Portugal). By ignoring the European dimension of decision-making in the EMU, this line of jurisprudence decreased publicness rather than increasing it. It basically reduced the conflict to matters of domestic common goods and excluded the possibility of thinking about transnational, European common goods. To the extent that domestic constitutional courts refer to EU constitutional law, the relationship between domestic and EU constitutional law is characterised by conflict, denial of relevance or a rhetoric of deficit. What is profoundly absent is any vision of a European common good based on EU constitutional values (such as solidarity) that could inform the management of transnational solidarity conflicts and lead to EU constitutional law as a benchmark for ‘publicness’. Therefore, domestic case law on transnational solidarity conflicts has at best produced integrative effects for domestic constitutional orders (inwards) but did not contribute to a further development and deepening of a European constitutional order. This is particularly remarkable, given that on a more technical regulatory level the eurozone crisis boosted further integration in the EMU.

The two domestic constitutional courts under review addressed transnational solidarity conflicts largely through procedural forms of accountability insisting on the need of an informed parliamentary decision and requiring the legislator to properly justify austerity measures. However, both constitutional courts have also applied some substantive aspects of accountability. The GFCC has stressed the relevance of a ‘proportionality review’ in the context of ECB decisions and has tried to push the ECJ to apply stricter scrutiny in this respect. However, it applied this standard only to the exercise of competences by the ECB and thereby deprived the principle out of its usual function of providing a yardstick for evaluating interferences with fundamental rights. The PTC has also applied substantive elements of accountability by developing and applying a standard of ‘proportional equality’ to measures of crisis reaction.

The advantage of domestic constitutional accountability regarding the achievement of integrative conflict management lies in the broad accessibility and procedural inclusiveness of accountability mechanisms. A diverse spectrum of political actors and/or individuals can challenge EMU-related decisions before domestic constitutional court. The procedural requirements are particularly low in the case of the German individual complaint (Verfassungsbeschwerde), but also the Portuguese system allows for a broad range of actors to challenge such decisions. Domestic constitutional accountability therefore allows to make transnational solidarity conflicts visible in the first places and channels as well as transforms them into constitutional conflicts. However, substantive emptiness of domestic constitutions remains limited during the management of transnational solidarity conflicts. While at least the GFCC kept an eye on trying to ensure openness of political will-formation in the German Bundestag, it otherwise ‘closed’ the meaning of several constitutional norms by upgrading economic concepts such as conditionality to constitutional principles. It thereby even enforced the ‘no alternative’ discourse by giving economic and political preferences the credit of constitutional value. The PTC on the other hand tried to ensure some substantial emptiness by ‘opening up’ the principle of equality to adapt it to new challenges and to use it as a tool to contest the EMU logic of market responsibility. At the same time, it ‘closed’ the Portuguese constitutions in the respective cases for interpretations that would require further austerity measures. At the very least, constitutional accountability before domestic courts has made transnational solidarity conflicts and accountability gaps more visible. It may also have partly contributed to enhancing the transparency of decision-making and increased publicness on the domestic level by positioning domestic constitutional principles as a benchmark for ensuring common goods.

11.2.1 Financial Assistance in the Eurozone

The first signs of the euro area sovereign debt crisis surfaced just a few weeks after the Treaty of Lisbon entered into force. The revised EU legal framework left almost untouched the EMU, with the exception of the new Article 136 TFEU. The urgent need to equip the EU and particularly the EMU with tools to deal with a major financial crisis was overlooked.Footnote ¹ There was no instrument to regulate emergency assistance to Eurozone Member States facing financial distress as the predominant paradigm affirmed that each country was fully responsible for its financial (mis)fortunes.Footnote ²

In 2010, the first emergency mechanisms were created: the European Financial Stabilisation Mechanism (EFSM) and the European Financial Stability Facility (EFSF), the former being a ‘creature of EU law’,Footnote ³ established under Article 122(2) TFEU.Footnote ⁴ Portugal received a total of €24.3 billion from the EFSM.

Besides establishing a financial assistance mechanism applicable to all Member States; a Special Purpose Vehicle was also adopted. The European Financial Stability Facility was incorporated in Luxembourg on 7 June 2010 as a société anonyme, and its shareholders are the euro area Member States.Footnote ⁵ The EFSF has provided financial assistance to Ireland, Portugal, and Greece. It was set up as a temporary mechanism, and it does not provide further financial assistance as this task is now assigned to the European Stability Mechanism.Footnote ⁶

Financial assistance under any of the mechanisms would be subject to strict conditionality: ‘financial support should be contingent upon the recipient Member State fulfilling certain budgetary, financial sector, and macroeconomic conditions’.Footnote ⁷ This new mode of economic governance has been qualified as ‘authoritarian liberalism’ for its resonance with the German experience of the late 1920s and early 1930s.Footnote ⁸

11.2.2 The Financial Assistance Programme to Portugal

In April 2011, Portugal became the third Eurozone country to request financial assistance, following Greece and Ireland. The Portuguese Financial and Economic Assistance Programme (FEAP) comprised a €78 billion loan to be delivered between 2011 and 2014 provided by the International Monetary Fund (IMF), the EU, within the framework of the EFSM, and the Eurozone countries, under the EFSF. The programme incorporated three documents: the Memorandum of Economic and Financial Policies, the Technical Memorandum of Understanding, and the Memorandum on Specific Policy Conditionality (hereinafter, the MoU). The first two documents were sent as attachments to a letter of intent addressed to the IMF’s executive Commission, and the third document was signed between the Portuguese Republic and the European Commission. The MoU detailed the general economic policy conditions embedded in Council Implementing Decision 2011/344/EU, of 30 May 2011, on granting EU financial assistance to Portugal.

The FEAP covered three broad lines of action to reach the 3 per cent deficit ceiling in 2013. It provided for the adoption of profound ‘structural reforms’ and a credible ‘fiscal consolidation’ strategy. As the government’s report on the Adjustment Programme’s execution claimed, ‘these were the years of the deepest and most wide-reaching reforms in the history of [Portuguese] democracy’.Footnote ⁹

The language of ‘structural reforms’ and ‘fiscal consolidation’ translates strict conditionality as a vital component of the bailout agreement. As Ioannidis notes, ‘[c]onditionality is the new topos of EU economic governance’.Footnote ¹⁰ To eliminate the danger of moral hazard, it ‘became the basic disciplining instrument’.Footnote ¹¹

The bailout was negotiated between April and May 2011 by the Portuguese State with a Troika composed of the IMF, the European Central Bank, and the European Commission. The negotiations were held by a resigning government, and the EU and Eurogroup required the commitment of the main opposition parties to the MoU to ensure political consensus.Footnote ¹²

11.2.3 The Legal Nature of the FEAP

The legal character of the memoranda and their conditionality has been a disputed topic. Some scholars claim that the programme had a pure proclamatory nature at the domestic level, while others argue that they are international treaties.Footnote ¹³ Others still recognize the hybrid nature of the programme, which combined a unilateral act (the IMF’s declaration), a bilateral agreement (the framework agreement and the loan contract with the EFSF), and EU acts (on the EFSM).Footnote ¹⁴ Another strand of scholarly literature claims that, despite the mixed legal parentage of the programme, and the links with the EU legal order, the predominant pedigree relates to instruments which must be qualified as international agreements.Footnote ¹⁵

That is not the opinion shared by Claire Kilpatrick who noted that, in the Portuguese and Irish bailouts, the ‘European leg’ of the memoranda prevailed as the ‘pole normative position’ was assigned to the ‘EU sources containing the loan conditionality…, not the international sources’.Footnote ¹⁶

Similarly, the PCC affirmed, in the first opportunity in which it was confronted with austerity policies implementing MoU conditionality, that the memoranda were legally binding. Whereas the Greek Council of State ruled out the legal value of the Greek MoU and sought to recognize its role as a political and economic plan whose implementation claimed the adoption of primary or secondary legal instruments,Footnote ¹⁷ the PCC recognized the ‘binding force for the Portuguese State’ of the FEAP, since it combined instruments based on both international law and EU law according to Article 8(2) of the Constitution. The international law leg was based on Article V, Section 11.3 of the IMF Agreement, whereas the EU leg was located on Article 122(2) TFEU and Council Regulation (EU) No 407/2010 of 11 May establishing the EFSM. In the words of the Court, ‘These documents impose the adoption by the Portuguese State of the measures contained therein as a condition for the phased compliance with the financing contracts signed between the same entities.’Footnote ¹⁸

11.3.1 EU Case Law

Two preliminary references by Portuguese courts indirectly challenged the validity of the MoU before the CJEU but in both cases the Court held that it clearly had no jurisdiction to hear them. Previously, another preliminary reference had challenged budgetary provisions implementing austerity measures adopted in the context of an excessive deficit procedure initiated by Council Decision No 2010/288/EU of 19 January 2010.Footnote ²¹ The wording of the three references challenged only national law implementing pay cuts on public-sector companies and failed to establish that the impugned domestic budgetary provisions implemented EU law.Footnote ²² Significantly, the CJEU treated all three cases as analogous in spite of the different legal frameworks underlying the concerned austerity measures. Furthermore, both the Fidelidade Mundial and Via Direta cases concern Article 21(1) of the Budget Law for 2012 on the suspension of payment of holiday and Christmas bonuses or similar benefits, whose wording expressly referred to the financial assistance programme:

The CJEU was outwardly dismissive of its jurisdiction to hear the cases alluding to the referring courts’ failure to establish the link with the EU bailout terms with sufficient clarity. The poor drafting of the references can be attributed to the complexity underlying the foundational bailout and its subsequent updates.Footnote ²³ However, that should have not prevented the CJEU from redrafting the questions submitted by the Portuguese courts.Footnote ²⁴ In cases of issues of admissibility, the CJEU has developed a generous understanding according to which questions submitted by national courts enjoy a ‘presumption of relevance’. Questions on the interpretation of EU law referred by a national court in the factual and legislative context which that court is responsible for defining, and the accuracy of which is not a matter for the Court to determine, enjoy a presumption of relevance.Footnote ²⁵ Only in exceptional circumstances will the Court refrain from giving a preliminary ruling providing that there is a rebuttal to the presumption.Footnote ²⁶

In Escribano Vindel,Footnote ²⁷ a case concerning reduction in salary of a Catalonian judge, in the context of general pay cuts linked to the requirements of eliminating an excessive budget deficit, the presumption of relevance was crucial for the Court to accept jurisdiction. In this case, the only link to EU law consisted of the reiterated reference to the ‘requirements of eliminating an excessive budget deficit’, without any specification being put forward of the normative framework detailing the EU sources potentially involved. The contrast in the attitude of the Court of Justice between the references from the Portuguese courts and Escribano Vindel is startling.

The fact that the Court failed to apply the presumption of relevance might imply, as Markakis hypothesizes, that it did not regard the contested bailout measures as resulting from an EU law obligation.Footnote ²⁸ According to this line of reasoning, the bailout terms embodied conditionality the national authorities would have to implement to access the disbursement of funds but were not legally binding. Insofar as said conditions concern areas of national competence, they would be mere recommendations. Accordingly, the EU has secondary competence to set the terms on which the financial assistance can be provided,Footnote ²⁹ but the relevant Council decisions would not give rise to EU law obligations to transpose and implement the bailout conditions into domestic law. However, the CJEU did not come clean on this and was limited to stating that the decisions for reference did not contain any specific material showing that the national measures were intended to implement EU law.Footnote ³⁰ Moreover, in later case law, as we will see below, the CJEU would eventually acknowledge that the bailout conditions form part of EU law and the Member State concerned is ‘implementing Union law’ within the meaning of Article 51(1) of the CFEU, at least when financial assistance is granted by the EFSM.Footnote ³¹

11.3.2 Ledra and Florescu

In the following years, the Court delivered other important judgements in different settings of financial assistance that would retrospectively point to the flaws in its initial case law to decline jurisdiction in the framework of the Portuguese financial assistance programme. A first moment came when, in Ledra, relating to the Cyprus bailout,Footnote ³² despite rejecting the qualification of the bailout as an act of EU law act, the Court nevertheless added that EU institutions remain fully bound by EU law and the Charter when they act as agents of a distinct international organization such as the ESM.

Afterwards, in Florescu,Footnote ³³ the Court acknowledged that a Memorandum of Understanding for Balance of payments is an act of an EU institution and could thus be referred under Article 267 TFEU for interpretation. The Court also specified that the national measure implementing MoU and a Council decision conditionality constituted an implementation of EU law and thus triggered the application of the Charter of Fundamental Rights. It has been argued that the ‘Florescu ruling serves to enhance the legal accountability of the EU institutions for their actions with respect to bailouts’.Footnote ³⁴ However, Florescu related to a bailout adopted in the framework of Article 143 TFEU concerning assistance to non-euro area Member States experiencing difficulties with respect to their balance of payments. For accountability purposes, the field of financial assistance to euro area members still posed as a gap in the case law of the Court of Justice.

This gap has only partly been addressed in more recent case law of the CJEU, and in terms which raise problematic issues. This will be further addressed below.

11.3.3 Constitutional Court Case Law

As explained above, the PTC qualified the documents that integrated the financial assistance programme as legally binding and found that the MoU was ‘ultimately based on Article 122(2)’ TFEU, and qualified, therefore as EU law. As such, insofar as the founding documents imposed the adoption, by the Portuguese State, of conditionality, there was no discretion as to whether the domestic authorities were in fact obliged to implement the said conditions. However, the Court found that those measures afforded discretion to the State to decide on the means best able to ensure compliance with those commitments.

In Decision 353/2012, however, the judges failed to realize that the impugned measures – the total and partial suspension of the 13th and 14th monthly salary payments of public workers and pensioners – albeit absent from the initial version of the MoU, had been included in its second update. In fact, whereas the first disbursement of financial assistance is released after the signature of the MoU, further instalments are conditional on the fulfilment of the bailout conditions included in the MoU (Article 4 of Regulation (EU) 407/2010). Changes in the general economic policy conditionality are negotiated between the Commission and the beneficiary Member State. Afterwards, the Council, acting by a qualified majority on a proposal from the Commission, approves the revised adjustment programme prepared by the Member State. The disbursement of the next instalment of the loan follows the signature by the Commission and the Member State of an updated version of the MoU revised in accordance with the Council’s decision (Article 3(6) and (7) of Regulation 407/2010).

The complex framework underlying the financial assistance programme added to the difficulty of the Court in handling claims involving the adjudication of complex economic issues in times of economic crisis.Footnote ³⁵ Importantly, by failing to trace the link between the domestic impugned measures and the MoU, a document which had been qualified by the PCC as EU law, the stage was set for what would become a dominant trend of the extensive bulk of austerity case law: the ‘nationalization of the crisis’Footnote ³⁶ whereby the PTC depicted domestic measures implementing the bailout conditionality as purely domestic affairs.

The challenged austerity measures were always framed as the result of autonomous political choices between competing viable alternatives, which allowed the Court to circumvent the difficult questions concerning the relationship between EU law and the national constitution and the validity of the MoU. This nationalization strategy of the crisis immunized the austerity litigation from the reach of EU law. Had the Court acknowledged that at least some of the challenged measures were – textually – determined by the MoU, then it should have drafted a preliminary reference questioning its compatibility with EU law, namely the Charter. Such a referenceFootnote ³⁷ would be harder to dismiss by the CJEU and would have brought the challenged measures to ‘their natural stage’ in accordance with the transnational dimension of austerity conflicts.Footnote ³⁸ Furthermore, it could have pushed the CJEU to face the solidarity conflicts undergirding the bailout austerity and measure the austerity against the social provisions of the CFEU. This leg of substantive accountability in relation to the public goods of social provisions of the Charter is missing not only in relation to the Portuguese financial assistance programme but generally in relation to the tension underlying social and liberal Europe.

It should be noted, however, that the nationalization of the austerity conflicts on the part of the PCC is in line with its traditional case law that had a reluctance to engage with EU law. Like other Kelsenian constitutional courts, the PCC followed the ‘doctrine of isolationism’Footnote ³⁹ for a long time, separating EU law issues from the stage of constitutional adjudication.Footnote ⁴⁰ Only recently has the PCC meaningfully engaged with EU law in its decisions.Footnote ⁴¹

11.4.1 EU Case Law

11.4.2 Constitutional AdjudicationFootnote ⁷⁶

The PCC became a prominent forum for litigation concerning austerity measures at the height of the Eurozone crisis. Between 2012 and 2014, several restrictive measures, directly requested by the MoU and the bailout conditionality, were checked for their compatibility with the domestic constitutional standards. On some occasions, the PCC delivered significant blows to the Government’s strategy by invalidating measures based on the principle of equality, particularly in the dimension of equality of burdens concerning the financial adjustment costs, the principle of legitimate expectations, and the principle of proportionality.Footnote ⁷⁷

It struck down further pay cuts on public workers and pensioners,Footnote ⁷⁸ a new framework broadening the legal basis for firing civil servants,Footnote ⁷⁹ some of the amendments to the Labor Code aimed at slashing labour costs and reducing the employees’ protection against unfair dismissals,Footnote ⁸⁰ and permanent cuts to pensions.Footnote ⁸¹

Whereas in the first challenges concerning pre-bailout austerity the PCC scrutiny was self-restrained and deferential,Footnote ⁸² when called upon to review domestic measures implementing MoU conditionality the Court moved from a light level of scrutiny to a less deferential approach. On the one hand, this greater unwillingness to defer to the political branches is in line with the tendency observed in the general judicial reaction towards the Eurocrisis.Footnote ⁸³ On the other hand, the Court justified the strengthened scrutiny with the cumulative effect of the restrictive measures, and the passage of time that created additional burdens on the domestic authorities to devise alternatives to reach fiscal stability without jeopardizing fundamental rights and the welfare system.

The primary benchmarks enforced by the PCC were the principle of ‘proportional equality’, in the sense that there should be an ‘equal distribution of the economic burden created by austerity’,Footnote ⁸⁴ and the principle of legitimate expectations. Despite the detailed catalogue of welfare rights, often qualified as the longest bill of social and economic rights in a national constitution,Footnote ⁸⁵ the austerity case law primarily relied on general and abstract provisions following the Court’s traditional ‘self-restrained’, ‘minimalist’ and ‘shy’Footnote ⁸⁶ socioeconomic rights jurisprudence.

The PCC addressed austerity conflicts concerning domestic measures implementing financial assistance conditionality primarily through substantive accountability means. As the Court highlighted,Footnote ⁸⁷

The financial impact of the decisions led to several renegotiations of the bailout programme of the MoU conditionality. The parties to the bailout agreement recognized the existence of a ‘constitutional risk’ to the implementation of the programme and introduced ‘legal safeguards’ in the MoU to mitigate ‘legal risks from future potential Constitutional Court rulings’.Footnote ⁸⁸

The introduction of the legal safeguards did not lead to a substantial change in the Court’s review. On the one hand, the level of scrutiny remained intense, and the Court later struck down some of the replacement measures. On the other, the appeal to the transnational dimension of the austerity conflicts did not induce the Court to substantially engage with EU law yardsticks. If, on the surface, the judges regularly cited EU law and international law to frame the rescue package for Portugal, such references had no substantial value, and the cases were always solved against national constitutional yardsticks.

11.4.3 Pensions’ Cuts Case Law by the ECtHR

Some austerity cases concerning reductions in pensions found their way to the Strasbourg court, but they failed at the admissibility stage. In Da Conceição Mateus and Santos Januário v PortugalFootnote ⁸⁹ the Court found that the cuts in the applicants’ pensions were ‘clearly in the public interest within the meaning’Footnote ⁹⁰ of Article 1 of Protocol 1 of the European Convention on Human Rights (ECHR) (protection of property). The Court also added that ‘a wide margin of appreciation is usually allowed to the State under the Convention when it comes to general measures of economic or social policy’.Footnote ⁹¹ At a later moment, in Silva Carvalho Rico v Portugal,Footnote ⁹² the ECtHR referred to the PCC decisions of 2013 and 2014 that found the pensioners’ contribution to be a proportional measure given its extraordinary and temporary nature. The Court also added that ‘budgetary constraints on the implementation of social rights can be accepted as long as they are proportionate (…) and do not reduce social rights’ claims to purely symbolic sums’, and that the ‘international recognition of the country’s economic situation indicates that the present budgetary constraints constitute an imperative, which however did not reduce possessions originating in a statutory social right’s claims to a level that deprives the right of its substance’.Footnote ⁹³

Moreover, the Court found itself incompetent to decide whether alternative measures were available, given the State’s wide margin of appreciation to decide on general measures of economic and social policy.

12.3.1 The Applicability of the Charter to the Eurogroup

In the context of European assistance, the Eurogroup is usually entrusted with general guidelines with regard to economic policy and not with the formulation of detailed financial assistance conditions. During the eurozone crisis, it determined the strategic choices of the economic adjustment programmes, such as the voluntary debt haircut in the case of Greece.Footnote ¹⁸ With regard to specific conditionalities though, it relied on the recommendations of the Troika. A notable exception to this rule was the case of Cyprus, in which the restructuring of the Cypriot banking sector was first decided by the Eurogroup before the Troika reached an agreement with domestic authorities.Footnote ¹⁹ The Cypriot rescue package is of particular interest, since it marks the first time that bank depositors were targeted as part of a European bailout deal. In exchange for the loans received by the ESM and the IMF, Cyprus had inter alia to wind up its second-largest bank, the Cyprus Popular Bank (also known as Laiki Bank), and to recapitalise its biggest bank, the Bank of Cyprus, at the expense of shareholders, bondholders, and depositors. In the winding up of the Cyprus Popular Bank, uninsured deposits exceeding the amount of €100,000 were completely liquidated. In the recapitalisation of the Bank of Cyprus, the depositors lost 47.5 per cent of their uninsured deposits.Footnote ²⁰

Given their substantial financial losses – the result of the extensive write-off of their bank deposits – uninsured depositors sought judicial protection before the courts of the EU, challenging the validity of the Eurogroup statement outlining the conditions of the bailout. Nevertheless, all their actions for annulment have been unsuccessful.Footnote ²¹ In fact, in the CJEU case Mallis and Others v Commission and ECB, the Court confirmed the orders of the General Court holding that the Eurogroup, which is an informal forum for discussion between ministers of the Member States whose currency is the euro, cannot be classified as a body, office, or agency of the EU within the meaning of article 263 of the TFEU.Footnote ²² Thus, a statement by it cannot be regarded as a measure intended to produce legal effects with respect to third parties, and can, therefore, not be annulled on the basis of article 263 of the TFEU.Footnote ²³ Moreover, in Mallis the CJEU rejected the argument that the Eurogroup is under the factual control of the Commission and the ECB, when it comes to meetings related to the ESM, and thus held that Eurogroup statements containing financial assistance conditions cannot be imputed to the EU institutions.Footnote ²⁴

In Council v K. Chrysostomides & Co. and Others, the CJEU went even further, stating that the Eurogroup is not an institution within the meaning of article 340 par. 2 TFEU, such that its actions cannot trigger the non-contractual liability of the Union.Footnote ²⁵ This is because, according to the Court, the Eurogroup was created as an intergovernmental body, outside the institutional framework of the EU, a fact that was not slightly altered by the formalisation of the existence of the Eurogroup and the participation of the Commission and the ECB at its meetings through article 137 TFEU and Protocol No 14.Footnote ²⁶

Nevertheless, in view of the serious interference with the fundamental rights of individuals, which might remain without legal remedy as is illustrated by the Cypriot case, the question arises whether the Court could have decided differently, stating the Eurogroup is bound by the Charter when formulating financial assistance conditionality. The scope of the Charter is determined by article 51(1) of the EUCFR, which reads: ‘The provisions of this Charter are addressed to the institutions, bodies, offices and agencies of the Union with due regard for the principle of subsidiarity.’ Not being one of the seven EU institutions listed in article 13(1) of the TEU, the Eurogroup may be bound by the Charter only if it could be regarded as a body, office, or agency of the or as a configuration of the Council of the EU. As pointed out in the explanation accompanying article 51 of the EUCFR, the expression ‘bodies, offices and agencies’ is commonly used in the Treaties to refer to all the authorities set up by the Treaties or by secondary legislation.Footnote ²⁷ The Eurogroup is explicitly mentioned in article 137 of the TFEU, which, with respect to its composition and the Union arrangements for its meetings, refers to Protocol No 14 annexed to the TFEU. This Protocol provides that the Eurogroup consists of the finance ministers of the euro area Member States, who ‘shall meet informally … to discuss questions related to the specific responsibilities they share with regard to the single currency’. As the Court has held, this provision presents the Eurogroup as ‘a forum for discussion, at ministerial level, between representatives the Member States whose currency is the euro’, and not as a ‘decision-making body’.Footnote ²⁸

Furthermore, the Eurogroup is not among the different configurations of the Council of the EU provided by article 16(6) of the TEU and enumerated in Annex I to the Rules of Procedure of the Council.Footnote ²⁹ Besides not being classified as such by the TFEU, the classification of the Eurogroup as a configuration of the Council would not be in line with the different functions that each of them performs. As Advocate General Wathelet observed in his Opinion on Mallis, while the Eurogroup is an informal forum for discussion between euro area Member States on questions specifically related to the single currency, the Council’s functions pursuant to article 16(1) of the TEU are far broader and include the exercise, in conjunction with the Parliament, of legislative power within the EU and the other decision-making powers conferred on the Council alone by the TFEU.Footnote ³⁰

Since it can neither be equated with a configuration of the Council nor classified as a formal decision-making body, office, or agency of the EU,Footnote ³¹ the Eurogroup does not fall under the scope of the Charter as defined in article 51(1) of the EUCFR. In view of the fact that, despite its informal nature, the Eurogroup very often predetermines and shapes crucial decisions in the framework of financial assistance, the conclusion that its acts cannot be assessed against the Charter is very problematic for the delivery of accountability goods. First and foremost, decisions taken under such an informal setting undermine the accountability good of openness, by depriving citizens of official information and transparent decision-making procedures. Furthermore, being left outside the scope of judicial review decisions of the Eurogroup can neither be assessed as to their non-arbitrariness nor as to their pursuit of common goals. As a result, the lack of human rights review with regard to decisions taken by the Eurogroup puts also the accountability goods of non-arbitrariness and publicness into peril.

12.3.2 The Applicability of the Charter to the Commission and the ECB

The next question relates to the case law of the CJEU with regard to the applicability of the Charter to the Commission and ECB, which as members of the Troika, had an important say in formulating and monitoring financial assistance conditionality.Footnote ³² Since Troika is a cooperation body and hence a subject that cannot be as such held accountable under international or EU law,Footnote ³³ its actions have to be regarded as joint measures of EU institutions and subjects of international law (Commission, ECB, and IMF), whose commitment to human rights must be assessed separately.

The CJEU was confronted with the applicability of the Charter to the Commission and the ECB (when they negotiate and conclude the MoU) in 2016, in the seminal case Ledra Advertising.Footnote ³⁴ On appeals against decisions of the General Court, which had dismissed as inadmissible actions for annulment and compensation raised after the restructuring of Cypriot banks, the CJEU clearly spelt out the obligation of EU institutions to respect human rights when formulating financial assistance conditionality. Filling the gap left on this issue in Pringle, the CJEU followed the Opinion of Advocate General Kokott,Footnote ³⁵ explicitly stating that the Charter binds EU institutions in all circumstances, even when they act outside the EU legal framework.Footnote ³⁶ In this vein, the Court clearly underlined that, in the context of the adoption of an MoU, the Commission is bound under both article 17(1) of the TEU – which confers upon it the general task of overseeing the application of EU law – and article 12(3) and (4) of the ESM Treaty – which requires it to ensure that the MoUs by the ESM are consistent with EU law – to ensure that such an MoU is consistent with the fundamental rights guaranteed by the Charter.Footnote ³⁷

Although article 51(1) of the EUCFR should have been mentioned, together with article 17(1) of the TEU and article 13(3) of the ESM Treaty, among the provisions that oblige the EU institutions to ensure that the MoUs are consistent with EU fundamental rights, the clear reference to the pertinence of the Charter to actions of EU institutions in the making of financial assistance conditionality constitutes a milestone for the protection of human rights in the context of post-crisis European financial assistance. Ledra Advertising leaves no doubt that – even if in the EFSF and ESM framework the Commission and the ECB act under powers conferred on them by intergovernmental agreements – their commitment to the Charter does not cease to exist.

Nevertheless, when deciding on the substance of the case, the CJEU ruled against the plaintiffs. More precisely, the Court concluded that the bail-in implemented in the Cypriot banking sector did not constitute a disproportionate and intolerable interference with the substance of the appellants’ right to property, given the imminent risk of financial losses to which depositors with the two banks concerned would have been exposed, if the latter had failed. Having found no unlawful conduct on behalf of the Commission, when permitting the adoption of the bail-in, the Court dismissed the appellants’ claims for compensation (articles 268 and 340 TFEU) as lacking any foundation in law.

12.3.3 The Applicability of the Charter to the Council of the EU

The Council of the EU approves financial assistance conditionality in the form of Council Decisions.Footnote ³⁸ The CJEU was confronted early on with the assessment of Decisions of the Council containing financial assistance conditionality after actions for annulment launched under article 263 of the TFEU. More precisely, the legality of Decision 2010/320/EU was questioned, on the one hand, due to the reduction of Easter, holiday and Christmas bonusesFootnote ³⁹ and, on the other hand, due to the increase in the retirement age and the reduction of the pensions of civil servants.Footnote ⁴⁰ Council Decision 2011/57/EU was challenged on the basis of its provision improving the management of public assets,Footnote ⁴¹ introducing means-testing of family allowancesFootnote ⁴² and limiting recruitment in the whole general government to a ratio of a maximum of one recruitment every five retirements or dismissals, without sectoral exceptions.Footnote ⁴³

In order for the actions for annulment to be admissible, the applicants had to prove that the regulatory acts were of direct and individual concern to them pursuant to article 263(4) of the TFEU. The Court held that the challenged provisions were indeterminate and left a margin to the Greek State as to the way they were implemented, and thus could not directly affect the applicants.Footnote ⁴⁴ It is only the content of the national implementing measures, which determine to what extent the applicants will suffer reductions, that might directly affect their legal situation. As a result, both actions were rejected as inadmissible.

As far as some of the contested measures are concerned, the arguments of the General Court are persuasive. Indeed, some of the provisions, such as the provision that provided for ‘better management of public assets, with the aim of raising at least EUR 7 billion during the period 2011–2013’Footnote ⁴⁵ and the provision on means-testing of family allowances, which stipulated ‘means-testing of family allowances from January 2011 on yielding savings of at least EUR 150 million (net of the respective administrative costs)’,Footnote ⁴⁶ were vague and left it to the discretion of national authorities to specify the details of their implementation. As a result, the General Court convincingly held that those provisions were not of direct concern to the applicants within the meaning of article 263 para 4 TFEU.

In contrast, less convincing is the outcome in relation to other contested measures. The ‘reduction of the Easter, summer and Christmas bonuses and allowances paid to civil servants with the aim of saving EUR 1,500 million for a full year (EUR 1,100 million in 2010)’Footnote ⁴⁷ and the provision on ‘an act that limits recruitment in the whole general government to a ratio of not more than one recruitment for five retirements or dismissals, without sectoral exceptions, and including staff transferred from public enterprises under restructuring to government entities’Footnote ⁴⁸ are detailed provisions, which specified the way in which they were to be implemented by the Member State concerned. Hence, in this case, the requirement of direct and individual concern of the applicants within the meaning of article 263 para 4 TFEU should have been regarded as met.

In view of the above, it is obvious that CJEU denied the applicants’ legal standing, approaching the cases on cuts in wages, pensions, and social benefits only in a procedural manner without proceeding to the assessment of their compatibility to human rights. Nevertheless and regardless of the procedural question of whether the Decisions are of direct and individual concern to individuals, pursuant to article 263(4) of the TFEU, the Council of the EU is undoubtedly included among the EU institutions which are bound by the Charter according to article 51(1) of the EUCFR read together with article 13 of the TEU. In addition, the Decisions of the Council fall under the types of secondary legislation listed in article 288(4) of the TFEU. Thus, the Decisions of the Council adopted under the framework of European financial assistance are unilateral, legally binding acts of an EU institution and as such fall under the scope of the Charter. The fact that their content arguably reflects a negotiated agreement between different actors does not impact on their legal nature as acts of secondary EU law within the meaning of article 288 of the TFEU.Footnote ⁴⁹ Against this background, it is very unfortunate to realise that individuals concerned may experience procedural hurdles when launching an action for annulment against a decision entailing lending conditions, when at the same time these decisions must be in conformity with the Charter.

Nevertheless, when, later on, the CJEU decided on the substance of financial conditions laid down in Council decisions, it held that restrictions on human rights were justified. Indeed, in case Sotiropoulou and Others v CouncilFootnote ⁵⁰ the General Court dealt with an action for compensation under article 268 TFEU in respect of the loss and harm, which the applicants had allegedly sustained, as a result of the reduction of their main pensions due to the adoption of a series of Council decisions under articles 126 (9) and 136 TFEU on pension reform in Greece.Footnote ⁵¹ In support of their action, the applicants relied on two pleas in law. First, the applicants claimed that, in adopting the contested decisions, which concern inter alia the laying down of detailed measures in the social security and pension system, the Council exceeded the powers conferred by the Treaty and infringed the principles of conferral and subsidiarity as laid down in articles 4 and 5 TEU in conjunction with articles 2 to 6 TFEU. Second, the applicants contended that the contested decisions of the Council required the introduction of drastic pension cuts that fundamentally disturbed the applicants’ financial situation and resulted in the reversal of situations which they had sought in good faith. As a result, the applicants claimed that the enactment and implementation of the reductions at issue resulted in direct infringement of their right to human dignity, their right as elderly persons to lead a life of dignity and independence, and their right to social security benefits and social services providing protection in cases such as old age, laid down in articles 1, 25 and 34 CFREU, respectively.

As to the first plea in law, the General Court held that the principles of conferral and subsidiarity concern the division of responsibilities between Member States and the EU and cannot be regarded as conferred rights on individuals. Consequently, any breach of these principles is not in itself sufficient to establish the non-contractual liability of the Union.Footnote ⁵² In any case, the contested decisions do not infringe the principles of conferral and subsidiarity, as they were issued with a view to reinforcing and deepening the fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit. As a result, the General Court held that the contested decisions were adopted in the context of the exercise of powers expressly conferred on the Council by article 126 (9) and article 136 TFEU.Footnote ⁵³

By their second plea in law, the applicants claimed that the sum of the pension cuts appears excessive and disproportionate and does not strike a fair balance between the requirements of the general interest and the protection of their fundamental rights enshrined in articles 1, 25, and 34 CFREU, namely the right to human dignity, the rights of the elderly and the entitlements to social security benefits and social services respectively. As to this complaint, the General Court held that, to the extent that the allegedly violated provisions of the Charter constitute rules of law intended to confer rights on individuals, it must be considered whether any breach of them could substantiate the Union’s liability in this case.Footnote ⁵⁴ Furthermore, the Court stated that, according to settled case law, when assessing the non-contractual liability of the Union, the Court has to take into account, inter alia, the complexity of the situations to be regulated, the difficulties in the application or interpretation of the legislation and, more particularly, the margin of discretion available to the author of the act in questionFootnote ⁵⁵ More precisely, the decisive criterion for establishing a sufficiently serious breach of a rule of law intended to confer rights on individuals is whether there has been a manifest and grave disregard by the institution concerned of the limits of its discretion.Footnote ⁵⁶ In the case at stake, the contested decisions constitute an exercise of the powers conferred on the Council by articles 126 (9) and 136 TFEU in the context of the excessive deficit procedure of an Eurozone Member State. This competence mainly involves economic policy choices for which it is justified to provide a wide margin of discretion. Hence, those provisions specify only the type of measures to be taken, which may be included in the recommendations from the Council to a Member State for the attainment of a specific objective.Footnote ⁵⁷ Against this background, the General Court stated that it was necessary to assess whether the Council adopted the decisions at stake in a manifest and serious breach of the limits of its discretion.Footnote ⁵⁸ As reminded by the Court, the contested decisions were issued following the conclusion of the Council that an excessive deficit exists in GreeceFootnote ⁵⁹ and the budgetary measures included had been extensively discussed with the Greek government and commonly agreed by the European Commission, the ECB and the IMF.Footnote ⁶⁰ In light of the above, the General Court held that it was not manifestly unreasonable to envisage various cost-saving measures, including pension cuts. Therefore, in adopting the contested decisions, the Council did not exceed the limits of its wide discretion.Footnote ⁶¹

Moreover, the Court underlined that even if the contested decisions were in fact capable of causing the alleged damage to the applicants, the rights to access social security benefits and social services are not absolute, since their exercise may be subject to restrictions justified by objectives of general interest pursued by the Union, as provided for in article 52 (1) CFREU.Footnote ⁶² In this vein, measures to reduce the size of pensions meet objectives of general interest, namely the ensuring of fiscal consolidation, the reduction of public expenditure, and the support of the pension system of the Member State concerned.Footnote ⁶³ Consequently, the General Court held that these measures also met objectives of general interest pursued by the Union, namely the ensuring of budgetary discipline of Member States whose currency is the euro and the ensuring of the financial stability of the euro area.Footnote ⁶⁴ In view of those objectives and the imminent risk of insolvency of the Member State concerned, the General Court came to the conclusion that the contested measures, which were specified in Greek national laws,Footnote ⁶⁵ cannot be regarded as unjustified restrictions of the rights claimed by the applicants, since they do not constitute a disproportionate and intolerable interference impairing the very substance of these rights.Footnote ⁶⁶ In light of the above considerations, the General Court held that the applicants did not establish that the Council had committed a serious breach of a rule of law which confers rights on individuals. Hence, in absence of one of the cumulative conditions for establishing the non-contractual liability of the Union provided for in article 340 para 2 TFEU, the action was dismissed in its entirety.Footnote ⁶⁷

12.3.4 The CJEU as an ‘Accountability-Rendering Actor’?

The overview of the supranational jurisprudence shows that the CJEU held a hesitant stance towards the protection of human rights during the Eurozone crisis. First, the CJEU declined to take up the merits of cases that questioned the compatibility of crisis-driven measures with Charter-guaranteed human rights, thus shying away from the task of delivering accountability goods. More precisely, leaving conditionality measures outside the scope of human rights review, came to a detriment of the accountability good of non-arbitrariness, since decision-makers were left free to not take into account right-based limitations in their policy-making. Furthermore, the accountability good of publicness was left without protection, since the court did not review whether consultation existed in the making of the measures or if the policies were in line with the principle of proportionality.

Second, even during the second phase of crisis-driven case law when the CJEU finally addressed the substantive questions put to it, it did not rule in favour of the plaintiffs. The CJEU weighed their claims against the perceived need for budgetary discipline by Eurozone Member States, the precarious financial stability of the euro area and the imminent risk of insolvency of the Member State concerned, concluding that the contested measures did not comprise unjustified restrictions on human rights. As a result, the CJEU guaranteed a very low level of protection of the accountability goods of non-arbitrariness and publicness, since the protection of human rights was put under a very weak judicial review. Altogether, these decisions mean that the CJEU will not be remembered for its defence of accountability goods during the European financial crisis but rather for the judicial self-restraint that it exercised in the field.

13.2.1 The Constitutional Question and What Lies Beneath

The debate on the legality of quantitative easing (QE) was mostly motivated by the economic implications of this type of instruments. There lies the dividing line between considering the QE ECB programmes as still being part of its monetary policy mandate or, on the contrary, falling under the realm of economic policy, in relation to which the ECB has only a supporting role.Footnote ⁹ The vertical allocation of powers defined in the Treaty turned a political-economic discussion over the characteristics of monetary policy programmes into a fundamental constitutional question with profound consequences. Far from being only a matter of legality, the delimitation of competences squarely put the finger on the structural flaws of the EMU (specifically on the lack of a fiscal union), as well as on the limits of the model of central bank independence, the degree of which is inversely proportional to the scope of central bank mandates.Footnote ¹⁰

The democratic implications of the interplay between monetary policy and fiscal (economic) policy – the first assigned to a supranational independent institution double-removed from democratic politics, the second, to Member States’ governments – make the delimitation of the ECB’s competence a particularly pressing constitutional question. The EMU constitutional framework combined with the politico-economic significance of quantitative easing as a mode of money creation makes this a fundamental political issue where the boundaries of democratic politics are at stake.

But lurking beneath the discussion on the limits of the ECB’s mandate is also the broader question of the role of law in structuring and controlling the powers of executive bodies which are either independent or placed at arms-length from democratic politics. The interplay between law and administration in contemporary polities is perhaps less dramatic than the pressing questions facing the ECB, and the spectacular clash between two high courts over the boundaries of monetary policy and on how to review them. Yet, it is equally significant to understand, first, whether key public law assumptions hold in policy areas where administrative institutions shape today’s societies and, second, to devise solutions for the flaws of current institutional designs and for suitable judicial and political accountability.

13.2.2 A Functional Analysis of the ECB’s Powers

Setting for now aside the constitutional and political specificities of monetary policy and of the ECB’s institutional setting, its powers have the following functional characteristics in common with other executive bodies: first, its mandate (whether narrowly or broadly interpreted) requires it to act in situations of uncertainty, reacting to the information that it collects and analyses, with a view to defining the best course of action on the basis of prognostic assessments that only the ECB/ECSB is both technically and legally competent to undertake; second, its decisions involve arbitrating between competing interests (that the conflicting objectives within its mandate mobilise), as well as assessing the effectiveness of the public action that, while taken by other institutions, can impact on the goals of its measures;Footnote ¹¹ third, its mandate is delimited and concretised by resorting to open-textured norms whose meaning depends on the interpretation of evaluative and goal-oriented terms, and varies according both to the specific contexts in which the ECB needs to act and to the prevailing (even if contentious) perceptions of what the scope and direction of its actions should be; and fourth, the long-term effects of its decisions will be fundamental for its credibility.

These characteristics give the ECB constitutive powers.Footnote ¹² Constitutive powers entail a circular and reflexive process between law application and law creation: legal norms define the mandates of executive and administrative bodies, but the meaning of those norms is determined through the action of those bodies; at the same time, the public interests that those bodies are meant to protect only come to bear through that very same action. Constitutive powers do not exist without the legal norms which executive and administrative bodies interpret and which allow them to exercise discretion. Yet, two factors, in particular, blur the distinction between interpretation and discretion in these instances and, therefore, break down the boundaries between law creation and law application. First, the executive or administrative body produces or catalyses the knowledge that is needed to interpret the norm. The intricate relationship between, on the one hand, the concepts that the legal norm uses to delimit the administrative and, on the other, the complex facts that the norm regulates,Footnote ¹³ makes the interpretation of the norm depend on the specification of technical terms and, hence, on the factual assessments that the administrative body was set up to make. It is the technical competence of the executive or administrative body that justifies the legal competence that it is given, within the constraints of a mandate that is both constitutionally and politically conditioned. Second, the attribution of meaning presupposes an understanding of the concrete aims of executive action and of how a particular factual situation may challenge those aims. Defining the meaning of the norm (e.g. price stability) is intertwined with shared normative understandings on what the role of that body should be in reaction to socio-economic and political realities and perceived needs of public action (e.g. what in each period price stability entails and how it can be articulated with other public policy objectives). Such definition of meaning has two intertwined effects. It generates and stabilises normative expectations (e.g. defining what is price stability sets the terms of what will be considered legally compliant measures). It gives existence to the public interests that delimit the legal mandate and that justify the existence of the administrative institution, and of its powers and instruments of action (e.g. price stability is also the public interest that the ECB needs to protect and achieve). Given their indeterminacy, these public interests only come into being retrospectively, through administrative action (e.g. price stability only becomes tangible through the action of the ECB). Ultimately, by acting, the administrative institution construes the legal norms that also ground what they may lawfully do.

Constitutive powers are not a prerogative of the ECB. These can arise in the conditions set out above, which apply to other administrative entities with rather different institutional characteristics and constitutional constraints.Footnote ¹⁴ They acquire, however, a specific dimension in the case of the ECB, as will be seen in more detail below, and shed light on the difficulties of judicial review. They are also relevant for the discussion over the distinction between the existence and the exercise of a competence, which stemmed from the contrasting Weiss judgments of the CJEU and of Germany’s Federal Constitutional Court (FCC) on proportionality. In fact, this controversy brought to light the constitutive nature of the ECB’s powers. One of the many points of criticism directed against the FCC judgment in Weiss was that it applied wrongly the principle of proportionality, not only because of its self-referential way of approaching proportionality and of a misplaced degree of judicial review but also because, according to the Treaty, a proportionality assessment of competences only pertains to their exercise, not to their existence.Footnote ¹⁵ That is indeed what stems from Article 5(4) TEU, but – as others have also pointed out – the mandate of the ECB is such that can be delimited only through its action, that is, through the exercise of competence.Footnote ¹⁶ Its constitutive powers mean that it construes the legal norms that also ground what it may lawfully do. The distinction between the existence and the exercise of a competence then breaks down.

13.2.3 The Blurred Boundaries of Legality

It follows from the above that the ECB is deciding on the scope of its mandate and, hence, it is deciding on its own competences. The FCC was, therefore, accurate in its diagnosis.Footnote ¹⁷ But it pointed at the wrong causes. The ECB’s actions are jurisgenerative not for lack of suitable judicial review of its actions (though there is certainly room to criticise the CJEU in this regard).Footnote ¹⁸ They are jurisgenerative because of the functional nature of their powers in the conditions in which they must be exercised.Footnote ¹⁹ For this reason, the existence of constitutive powers is not a pathology that must be corrected. But that does not mean that it is unproblematic.

Constitutive powers denote a fundamental tension within the very structure of constitutional democracies, which attribute to law a quality which it cannot have (or that it can only imperfectly achieve) in the circumstances in which central banks (and other administrative institutions) act: the ability to contain and constrain substantively the future-oriented powers of administrative entities acting in conditions of technical and political complexity and uncertainty. As the characterisation of constitutive powers indicates, this does not mean that law is meaningless. As mentioned, these public powers can only exist because the law provides for their existence: constitutive powers presuppose the very legal norms whose meaning executive bodies get to define. But, in a fundamental way, law does not have the capacity to contain and constrain their exercise as the rule of law strictures prescribe. For the same reason, but from a different perspective, also the role that economists attribute to rules in the debate between rules-based and discretionary monetary policy – in which the former is linked to the defence of a narrow mandate of independent central banks and the latter is held to be incompatible with this model role of central banking – is misguiding. And, yet, the characterisation of the ECB’s mandate along the model of a rules-based monetary policy continues to underpin the ECB’s constitutional status of independence.

None of the above means, however, that legal substantive strictures are irrelevant to ascertain whether the ECB (or other bodies whose powers have the same functional characteristics) has acted within or outside its mandate. If constitutive powers only exist because legal norms can lawfully authorise their holders to act, legal norms must, to some extent at least, structure the way in which meaning will be given.Footnote ²⁰ The concept of constitutive powers points, rather, to the concrete nature of the law that governs administrative and executive actions in the areas where they emerge. This law varies according to normative understandings of problem definition and on adequate responses generated in institutional settings where abiding by legal norms merges with the need to ensure the social acceptance of the interpretations and solutions that the administration adopts.Footnote ²¹ Without those normative understandings, which the administrative bodies translate into legal forms, legal norms would be inoperative. So, as much as a specific conception of the relationship between monetary and fiscal policy has underpinned the current Treaty framework and the norms that delimit the mandate of the ECB, also a different understanding of that relationship has enabled the ECB to claim – and the CJEU to ascertain – that its quantitative easing programmes are within its mandate of price stability. That such understandings are contested is something that the Weiss saga (as much as the Gauweiler judgments before) has clearly revealed to the legal world. But, in the specific circumstances in which it acted, that contestation did not prevent the ECB from acting according to the normative understandings that formed in its institutional environment in relation to the meaning and scope of monetary policy. It is noteworthy that this process is deeper and more complex from the often too easy criticism of competence creep. As much as constitutive powers may lead to expansive interpretations of the scope of an entity’s mandate – as was the case with the ECB – they can be constitutive in exactly the opposite sense.Footnote ²² As I will explain next, the empowerment of the ECB does not necessarily follow from its constitutive powers.

13.2.4 A Distinct Instance of Constitutive Powers

Constitutive powers point to a relationship between law and administrative power that is different from accepted conceptions on the role of law in liberal democratic polities (a direction that requires further inquiry as to its legal and normative implications). Characterising the powers of the ECB as an instance of constitutive powers arguably helps approach in a more accurate way the question of the legality of its action. Yet, this proposed angle of analysis must not overshadow what is distinctive about the ECB’s powers and their evolution.

The ECB has the ability to control the means of money creation and to influence fundamentally the fiscal policy decisions of elected governments (as any central bank, given the interrelation between monetary and fiscal policy). This immense political power (in the sense of potentia) sets it apart from other administrative institutions. Compounded with constitutive powers, this trait manifestly makes it an excessively powerful institution and can only be constitutionally justified – if at all – if those powers can be subject to suitable forms of control. Its potentia allowed it to engage in an expansion of its mandate unimaginable when the ECB was set up in 1992.Footnote ²³ In the political-economic context of the 2010s and in the very first years of the 2020s, the constitutive nature of its powers meant an unparalleled expansion of its monetary policy mandate, following an interpretation of its role, which at first it took on hesitantly, in the midst of the sovereign debt crisis (with the political support of national governments sitting in the Council), and is in the process of consolidating as a settled way of approaching its mandate. This is not the place to retell this story.Footnote ²⁴ It is, however, important to underline, that the empowerment that the ECB has witnessed in the last decade is not a necessary consequence of the existence of constitutive powers.

That empowerment was only possible because of a complex combination of different economic and political circumstances that, while part of a broader change in central banking, raise specific constitutional and political difficulties in the EMU.Footnote ²⁵ The very assessment of the legality or illegality of the ECB’s quantitative easing programmes – whether they are still in the realm of monetary policy (whether legitimately or illegitimately) or, on the contrary, make illegal (and illegitimate) inroads into economic policy – is politically loaded (as the political curricula of some of the plaintiffs in Gauweiler and Weiss clearly show). Claiming, for instance, that – while the ECB’s QE programmes were justified in the aftermath of the sovereign debt crisis and, hence, could be legally upheld as such – as soon as conditions of normality would be reached, the ECB needed to retreat to the narrow monetary policy mandate that it had pursued prior to the crisis, lest it being in breach of the Treaty, is entering a political battlefield. Here, legality is but one factor in a politico-economic (and also geo-strategic) discussion that touches on the very terms in which the EMU could be created in 1992.

That was the battlefield that the CJEU entered – almost inadvertently, it seems – with its Weiss judgment of 2019.Footnote ²⁶ The legal dispute over the ECB’s mandate reflects the fundamental mismatch between the ‘new ECB’ and the political-economic premises that underlie the Treaty’s EMU rules.Footnote ²⁷ Albeit not always explicitly, this is the background of the different conceptions of the ECB’s normative role within the EMU, and of the boundaries of monetary policy, part of the ongoing debate that heated up considerably after the FCC’s Weiss judgment in May 2020. The terms of the relationship between the two limbs of the ECB’s mandate – the extent to which they are in tension, what the meaning and extent of ‘support’ may be and, hence, the degree of permissible economic intervention – depends largely on which political economy theory one advocates and on how the very design of the ECB mandate meant endorsing a specific political-economic conception of monetary policy (monetarism) and the rejection of another (Keynesianism). That, in turn, impacts on the ECB’s independence and how it can be justified (or not) as democratically legitimate.Footnote ²⁸ This background and the combination of constitutive powers and the political power (potentia) of the ECB account for much of the difficulties in finding a suitable degree of judicial review of the ECB’s monetary policy, beyond the principled arguments that can be drawn from its technical expertise and its institutionally safeguarded independence.

13.3.1 Neither Intrusion nor Deference: The Legal Implications of Full and of Limited Review in Weiss

On the intensity of judicial review over the ECB’s actions, the two courts’ rulings on Weiss could possibly not be further apart (a disparity that the judgments in Gauweiler had already anticipated).Footnote ³² Like other aspects of the judicial dispute, these differences have been extensively noted in the literature.Footnote ³³ I take them up here again only to the extent necessary to illustrate the conundrum of judicial review in these matters; that will also point out the weaknesses of the critique addressed to the FCC’s position and of the praise that the CJEU’s judgment got.

The FCC applied what most commentators considered to be a too-stringent gauge incompatible with the discretion that a central bank must have in monetary policy. It did so by drawing on the principle of proportionality and by requiring that its third limb (proportionality stricto sensu) be applied to ascertain whether the limits of the ECB’s monetary policy mandate had been breached.Footnote ³⁴ In this way, on the one hand, the FCC took the consequences from the premises of the monetarist paradigm that the EMU rules enshrined, as it insisted that the ECB’s narrow mandate be upheld as a matter of law and of democratic legitimacy.Footnote ³⁵ On the other, it departed from that paradigm, because it demanded that the ‘economic and social policy effects’ of the ECB’s measures, including the impact that ‘a programme for the purchase of government bonds has on, for example, public debt, personal savings, pension and retirement schemes, real estate prices and the keeping afloat of economically unviable companies’ be weighed ‘against the monetary policy objective that the programme aims to achieve and is capable of achieving’.Footnote ³⁶ Having found that the ECB had not proceeded in this way, it required that it conduct a proportionality assessment and demonstrate that the economic effects of its measures were not disproportionate. This outcome resulted in a difficult compromise between exercising full judicial review, which the FCC held necessary, and, at the same time, giving sufficient leeway to the scope of monetary policy decisions.Footnote ³⁷ (Dis)proportionate to what exactly is something that was not immediately clear (even if the judgment gave some hints in this regard).Footnote ³⁸ The ECB needed in any event to ‘[identify], [weigh] and [balance] against one another’ the monetary policy objective of its programme and its economic policy effects.Footnote ³⁹ In the plentiful commentary that ensued after May 2020, very few agreed with the FCC’s contention that full judicial review was due. Most pointed out that such a degree of review constrains the ECB to a specific way of acting and limits unduly the discretion that the Treaty gives it. The principle of proportionality, applied as the FCC requires, postulates a clear identification of the conflicting positions that must be weighed, something that is not possible in monetary policy.Footnote ⁴⁰

Be that as it may, the ‘elephant in the room’, when the discretion of the ECB is invoked in relation to the limits to judicial review, is what the ECB’s discretion implies. Weighing different monetary policy alternatives in view of their economic policy effects is not a process that can be delimited by legal norms that identify the public interests to be protected or that specify thresholds of protection. It is a policy-making process where what price stability is and what it requires is defined at each point by the ECB itself (in coordination with political actors) and where various alternatives are open-ended. The lack of a concrete conflict prevents a balancing process that the full application of proportionality requires.Footnote ⁴¹ This argument has deeper consequences. The presumption that the legal norms could operate in this field and limit public authority as they do in other areas of public law does not hold. Or, put differently, to assume that the Treaty norms can constrain the policy process that the ECB must undertake – that is, that monetary policy can be rules-based as the monetarist paradigm presumes – necessarily restricts the ECB’s scope of action in circumstances different from those that the Treaty framework envisaged. Indeed, proportionality is much more than a legal principle structuring the way to reach an outcome lawfully. How the FCC applied it presumes that it is both possible and legally needed to hold on to the limits that the monetarist paradigm of monetary policy determines and that are specified in the Treaty.Footnote ⁴²

From the opposite perspective to the one the FCC endorsed – that is, for those who defend that courts should not have a role in matters of monetary policy – the very existence of judicial review ‘qualifies as bold judicial law-making’ of the type that exceeds the boundaries of the judiciary function.Footnote ⁴³ The fact that the CJEU is confronted with the need to adjudicate on such matters justifies the deferential approach to the ECB’s exercise of discretion that the Court endorsed. Commentators were almost unanimous in this regard.Footnote ⁴⁴ The two arguments invoked are, in the case of the ECB, overlapping and circular: the legal and technical competence of the ECB and its independence, which the Court must respect. The comparative advantage of the ECB’s expertise is obviously uncontested. But this is a weak argument if not accompanied by a specification of what is special about monetary policy that prevents a more intense judicial review, for lack of expertise, which is possible in other areas where the Court also lacks expertise (where the correct interpretation of the law requires the Court to define, for example, if what financial stability requires in conditions of uncertainty falls within the mandate of the EU financial agencies or of its Single Resolution Board).Footnote ⁴⁵ Independence and the way the Court had already delimited the boundaries of the ECB’s mandate (by reference to the objectives and to the tools of monetary policy, in Pringle and Gauweiler) come to the rescue. Judicial review is necessarily limited because it cannot impinge on the Treaty-protected independence of the ECB; furthermore, as the Court had also already established in Gauweiler and in Pringle, foreseeable indirect economic effects of monetary policy do not affect the classification of a measure as monetary. The Treaty norms and the Court’s case law, therefore, settle the issue of the degree of judicial review: deferential review limited to verifying whether manifest errors of assessment were committed (or, more specifically, the deference that the Court applied) is the only possible way of controlling the legality of the ECB’s action. That is consonant with the need to preserve the space of manoeuvre that the ECB must have to adapt its instruments to varying circumstances.Footnote ⁴⁶ In this reading, the Court suitably attuned the application of proportionality to how it can operate in an area of limited judicial review, in accordance with its standard of review in instances of discretion.Footnote ⁴⁷ The Court was, therefore, right in holding that ‘nothing more can be required of the European System of Central Banks (ESCB) apart from that it use its economic expertise and the necessary technical means at its disposal to carry out that analysis with all care and accuracy’.Footnote ⁴⁸

This position, however, fails to acknowledge that the way the CJEU reviewed the ECB’s programmes, in light of its discretion means de facto a blanket authorisation to the ECB that only gives legal anchoring to its potentia. The lack of clarity of what are the interests that must be put in proportion in a proportionality assessment does not only taint the third limb of proportionality that the FCC wrongly applied to an exercise of a competence and that the CJEU rightly omitted from its judgment.Footnote ⁴⁹ It turns proportionality into a ‘free-standing ground of review’ that obfuscates what the Court is doing when applying this principle. ‘Free-standing ground of review’ – a term coined by Kosta – allows the Court to invoke the principle without actually conducting a proportionality assessment, because it does not balance conflicting interests.Footnote ⁵⁰ That was the critique of the FCC to the CJEU’s Weiss judgment, when pointing out the difficulty in identifying which opposing interests the CJEU had considered and weighed.Footnote ⁵¹ More than applying low-intensity review, the judgment meant an outright deferral to the economic expertise of the ECB.Footnote ⁵² In fact, what the CJEU allowed for was what the FCC had already critiqued in its Gauweiler judgment in 2016: it enabled the ECB to ‘decide autonomously upon the scope of [its] competences’.Footnote ⁵³ That much is confirmed by the assumption that when the ECB acts in controversial monetary policy it must only deploy with care and accuracy its expertise, which either is implicitly considered to be neutral to the political consequences of its measures, or, at least, necessarily incorporates their economic consequences (however classified).Footnote ⁵⁴ Combined with the judicial interpretation of the delimitation of monetary policy, the result is that it is virtually impossible to judicially prevent possible abuses of law by the ECB.Footnote ⁵⁵ Ultimately, we are before an instance of judicial abdication.Footnote ⁵⁶

13.3.2 Beyond the Semblance of Judicial Review

When applied to monetary policy, both full and limited reviews have difficulties that ultimately make them untenable. The judgment showed, thereby, the weaknesses of judicial accountability in this field. In very different ways, both degrees of review amounted only to a semblance of judicial review (as much as this critique appears counter-intuitive when applied to the FCC’s judgment).Footnote ⁵⁷ At the risk of oversimplifying the intricacies of both judgments, their result in terms of a court’s ability to control the action of a central bank is comparable. They both acted as if their arguments and tools of review could constrain the actions of the ECB to patterns of legality that, at the end, are defined by the ECB itself, given its constitutive powers.

The CJEU sanctioned the ‘whatever it takes’ famously pronounced by Draghi in 2012. It had done so in Gauweiler and took the same position, in very different circumstances – and less comprehensibly – in Weiss, when the programme under scrutiny was not a response to an emergency. The FCC, in turn, ultimately took a decision that, as mentioned above, was, at best, an awkward compromise between stringent review and needed leeway of executive action.Footnote ⁵⁸ The way out was merely procedural. The Bundesbank was prohibited from partaking in the PSPP, unless within three months, the ECB Governing Council would adopt ‘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’.Footnote ⁵⁹ This result contrasted starkly with the FCC’s spectacular clash with the CJEU and with its harsh critique of the latter’s judgment. Indeed, most commentators, writing and speaking in the immediate aftermath of the judgment, did not expect any substantial impact of the Weiss judgment on the ECB’s monetary policy.Footnote ⁶⁰ The reasons invoked were mostly of constitutional nature: the ECB is outside of the FCC’s jurisdiction and the intricate way – if not flawed, as most argued – through which the FCC arrived at its conclusion could not, for legal and political reasons, have a bearing on the ECB.Footnote ⁶¹

But there was another critique to the judgment’s outcome: what the FCC required could easily be met. By collecting information that was even in the public domain, the ECB could satisfy the FCC’s demand for proportionality. It only needed to channel that information institutionally to the German government and parliament and all would be settled. Why then risk a constitutional crisis at the worst possible moment?Footnote ⁶² Both in institutional and in academic circles, the outcome of the judgment was seen as simply entailing the transmission of information. As soon as the judicial storm would pass, no far-reaching consequences to the actions of the ECB would be longer visible. That was, in fact, what happened.Footnote ⁶³ What was, in substance, a major disagreement (with potentially immense constitutional consequences) on the way that a reviewing court should mobilise proportionality as an instrument of either full or limited review had no bearing in legal and policy terms. The result, in short, was a clear failure of substantive accountability through judicial control. This conclusion, in turn, also means that the association between full review with substantial accountability, on the one hand, and limited review with procedural accountability, on the other, hides more than it reveals.Footnote ⁶⁴

Few noted the significance of its judgment laid elsewhere: the FCC had disclosed the deeper constitutional difficulties that the ECB’s action raised for the construction of the EMU.Footnote ⁶⁵ In terms of accountability, the judgment’s immediate outcome was significant, even if admittedly not consequential (at least in the short-term) for the conduct of monetary policy: the FCC had referred the question back to the political institutions.Footnote ⁶⁶ So, even if both judgments had shown, in opposing ways, that neither full review nor limited review may be suitable means to control monetary policy, each pointed in a very different direction. While the CJEU empowered the ECB, the FCC stressed the importance of vertical checks by politically accountable institutions.

One question, however, remained unanswered. If the courts have, at the end, little to say in monetary policy matters – either because of the way they interpret the substantive mandates or because of the unsuitability of the tools that can deploy to contain legally the executive action of central banks – can law have a role in structuring and limiting the action of ECB? The answer is positive, but it is far from being straightforward. One must search for legal strictures that must be present irrespective of judicially generated or judicially enforced duties.

13.4.1 Reasons in Weiss

The FCC censored both a ‘lack of balancing and [a] lack of stating the reasons’ by the ECB.Footnote ⁶⁷ The German government and the German parliament had failed, as a result, to take suitable measures against the ECB’s Governing Council. They had ‘neither assessed nor substantiated’ whether the PSPP was compliant with EU law.Footnote ⁶⁸ If the problem was one of proportionality, it was compounded with insufficient documentation and communication of the balancing act that the ECB needs to undertake between the monetary and the economic policy consequences of its actions. In addition to stressing the importance of political accountability in matters of monetary policy, the FCC had also pointed to the relevance of the duty to give reasons. But beneath the fury of criticism it received, these strengths of the judgment were mostly ignored.

It is hardly surprising that the relevance of the duty to give reasons went largely unnoticed. While in EU law it is a constitutional requirement applicable to all legal acts of the institutions, it is often dismissed as a routine practice without significant legal consequences or much noteworthy controversy. It is often invoked in judicial litigation, but hardly ever leads to pronouncements of breach capable of leading to the annulation of the legal act. That is largely due to the balanced approach to the duty of reason-giving that the EU Courts have developed and refined over the decades.Footnote ⁶⁹ According to the formula that the Court also cited in Weiss, the statement of reasons

In this way, the Court ‘proceduralises rationality’ and attunes its demands to each litigious situation, considering the need of effective judicial protection in each case.Footnote ⁷¹ Accordingly, the EU Courts consistently emphasise that the specific requirements of the duty to give reasons depend on the circumstances of each legal act, in particular, on the substance and wording of the measure, the nature of the reasons given, the interests that the persons directly and individually concerned may have in obtaining explanations, the context of the measure, and ‘the whole body of rules governing the matter in question’.Footnote ⁷² This flexibility built into the duty allows the Courts to modulate their degree of review of compliance with this duty and to avoid the slippery step of turning the review of a procedural requirement into a review of the substantive legality of the act.Footnote ⁷³ It also allows them to adapt a duty that applies indistinctly to all the legal acts of the institutions to their legal effects, for example, by distinguishing the scope of the duty to state reasons of an individual measure and of a measure intended to have general application.Footnote ⁷⁴ All this mirrors the function that the duty to give reasons has in judicial proceedings. It operates as a norm of control, which, as the case law indicates, is instrumental for two purposes: to enable the persons concerned to ascertain the reasons for the measure and to enable the Court to exercise its power of review.Footnote ⁷⁵

13.4.2 Reasons and Integration: Constitutional Foundations

In EU law, however, this duty has a deeper constitutional foundation, which gives it a different political significance and generates different legal implications from those that the case law normally expresses. The general duty to give reasons was meant also to enable ‘Member States and (…) all interested nationals [to ascertain] the circumstances in which the [institutions have] applied the Treaty’.Footnote ⁷⁶ While related to the need to afford legal protection to persons concerned (eventually through judicial review), this function was distinct from this strictly protective dimension of the duty to give reasons. It was justified because of the limited (attributed) competences of the supranational institutions whose powers had the capacity to constrain the sovereignty of the Member States.

More deeply, in the case of the ECSC, the requirement that the Community ought to ‘publish the reasons for its actions’ was enshrined in a provision where the functions of the Community were outlined (Article 5 ECSC Treaty) and then specified as a legal duty of the High Authority (Article 15 ECSC Treaty). A systematic interpretation of Article 5 ECSC shows that there was an intrinsic link between the transparency that ought to derive from a statement of reasons and the action of the Community’s institutions, in particular of the High Authority at its core.Footnote ⁷⁷ That the whole Community needed to be a ‘glass house’ was one of the foundational blocks of the integration process.Footnote ⁷⁸ It was a means of ensuring the acceptance and cooperation of the natural and legal persons subject to the authority of the High Authority and, crucially of the Member States. Politically, without persuading through reasons, the Community would fail. Legally, if the acts of the High Authority needed to be the expression of the objectives of integration set in Article 3 ECSC (binding on the institutions), the statement of reasons was the means to enable a judgment on whether that legal bound was respected. Importantly, those passing that judgment were ‘the Member States and (…) all interested nationals’ who could thus ascertain ‘the circumstances in which the [institutions have] applied the Treaty’.Footnote ⁷⁹

The political and legal significance of this public understanding (still visible in institutional litigation over the correct use of a legal basis) was overshadowed by how the Court developed the duty to give reasons as a norm of control (suitable for purposes of judicial review of legal acts involving discretion).Footnote ⁸⁰ Nevertheless, the duty to give reasons was constitutionally, first and above all, ‘a guarantee against arbitrary action, by enabling the public to understand and investigate the actions of the executive invested with important powers’.Footnote ⁸¹ Its purpose was, hence, to ensure substantive accountability, that is, to demonstrate how the choices made by the institutions ‘plausibly aimed for and achieved non-arbitrary results’.Footnote ⁸² Importantly, it should ensure the ability of the public to pass that judgment. Of course, this referred to the knowledgeable public, who could have standing before the court (and, possibly, political weight within their Member States). But, nevertheless, the public understanding that the statement of reasons ought to facilitate would allow the High Authority to avert the ‘hostility of certain milieus[,] [those who] had expressed an accusation all the more formidable as obscure of “technocracy”, evoking the intervention of tenebrous powers, which in the modern political mythology have replaced the ancient gods’.Footnote ⁸³ Not least, the political accountability that the duty served could – and should – be exerted by the parliamentary assembly, which at the time was, nevertheless, a rather weak institution.

This constitutional understanding of the duty to give reasons must be revived for today’s EU, given that the scope of duty to give reasons was broadened by the Lisbon Treaty, the same Treaty that introduced modifications intended to establish a ‘more institutionally solid, democratic and citizen-oriented foundation’ of the Union.Footnote ⁸⁴ Such revival is particularly needed in the instances in which its executive bodies can have constitutive powers, as is the case of the ECB. Justification, as a guarantee of substantive accountability, must then reflect the balancing of competing interests involved in decision-making and show how different groups and interests are advantaged and disadvantaged by a non-arbitrary decision.Footnote ⁸⁵ That is a necessary component of generation of the public interests that the decision embodies, in relation to the legal framework in which it is embedded. It is, in other words, a necessary part of the exercise of constitutive powers and must be controllable as such. However, it is, arguably, not the task of the court reviewing the legality of judicially contested measures to enforce this constitutional dimension of the duty to give reasons. That must be primarily realised by the deciding body and by its political overseers.